1) Adjusting entries occurs in the sixth step called adjusting journal entries.
You post any corrections needed to the affected accounts once your trial balance shows the accounts will
be balanced once the adjustments needed are made to the accounts. The adjusting entries are related
to a work sheet since it is through a worksheet that errors are tracked for corrections. You don’t need to
make adjusting entries until the trial balance process is completed and all needed corrections and
adjustments have been identified which occur in the end of each accounting period to ensure that the
entity reports accurate financial performance.
There are some adjusting entries that are reversed once the new period has started.
Doesn’t this give investors a distorted view of the financial condition of a company if we turned around
and negate entries that are made at the end of a prior period? Why?
2) Adjusting entries are made during the Trial Balance phase. These entries can be made for many
reason such as re classification or closing out inventories. This is the final step before closing the books
and ensuring those entries are correct and of up most importance. These entries are made closed out at
the end of an accounting period because this closes out the accounting cycle and in many cases the
numbers from the trial balance are imported to the final financial statements.
In many cases adjusting entries are made based on estimates of the current values of various accounts.
How can you make sure that those estimates are based on generally accepted accounting principles?
3) Depreciation is another area where a company has a lot of control over what amounts they use. Since
you are estimating useful life and salvage values.
Is this another area where a company could really take advantage of things and use it to manipulate their
How would you catch it if they did?
4) What types of depreciation do you think are most appropriate for things like vehicles and other
5) One of the biggest differences between GAAP and IFRS has been their concepts of revenue
recognition. Here is one article that discusses some of the differences:
Do you think they will be able to resolve these differences so that we can move forward with the
convergence of GAAP and IFRS? Why or why not?
6) A guiding principle behind the time value of money is that an organization should be able to compare
between different investment opportunities and make the best decision possible about which course of
action to take. But that is based on an organization being able to know how much they might make, or
what it might cost, for each investment possibility. A lot of this gets based on estimates of cost and rate
How do we make sure that those estimates are truly reliable?
7) If LIFO is not allowed because the principles it relies on do not rely exist anymore, how can it still be
valid for IRS purposes?
Shouldn’t they not allow it as well?
If they shouldn’t allow it, why haven’t they yet?
8) We tend to pay a lot of attention to net income when we look at the viability of investing in a business.
But it can be manipulated very easily by changing costing, depreciation, receivable collection, and
income tax procedures and policies.
Why do you think we look at it so closely, when it is so easy to manipulate it?
What else might we consider using to determine the true value of a company?