Question

What types of accounts to adjusting entries is usually impact and why

Answer 1

Adjusting entries are journal entries that enables the company to prepare it's books of accounts on the basis of accrual basis of accounting. These entries are passed at the end of accounting year.

Example 1:

Depreciation for the year is $50000.

Here adjusting entry will be:

Depreciation Dr 50000

Accumulated depreciation Cr 50000

In this adjusting entry, Depreciation account and accumulated depreciation account has been affected.

Example 2:

Rent expenses of 120000 paid for 2 years on Jan 1.

Here adjusting entry will be:

Rent expenses Dr 60000 (for one year)

Prepaid rent Cr 60000

In the above case, when the amount of rent was paid on Jan 1, then journal entry would be:

Prepaid rent Dr 120000

Cash Cr 120000

Now at the year end on Dec 31, it required to pass adjusting entry and debit rent expenses.On Jan 1, we have shown prepaid rent of 120000 but now at the year end, we have utilised prepaid rent for 1 year and now prepaid rent is only 60000. So, in adjusting entry, rent expense is debited and prepaid rent is credited.

All personal accounts (Accounts Receivable, Accounts Payable, outstanding expenses, Accrued income etc.) and nominal accounts (expenses accounts, income accounts) are affected due to adjusting entries.