Form 26. Statement of Profit and Loss—Report Form
Form 27. Statement of Profit and Loss—Account Form
Interim Statements.—In many businesses, where the fiscal period is six months or a year, it is often desirable and important that at least approximate results be secured at interim periods. This can be accomplished by means of the work sheet without entailing the burdensome work involved in a formal closing of the books. At the time of the taking of any trial balance, the work sheet can be used as a means of making the necessary adjustments before securing results as to financial and operating condition. Accurate results would of course require as careful work as at the end of the regular fiscal period. The purpose of interim summaries is to indicate trends rather than to show accurate and definite results. At such times, therefore, the inventory is usually estimated, oftentimes the same amount being used as at the beginning of the period. Accruals and deferred items are not so carefully estimated nor in so great detail. Bad debts and depreciation must be taken into account. In this way approximate results for any period—frequently every month—may be secured without interfering with those for the regular fiscal period.
CHAPTER XXVIII
ADJUSTING AND CLOSING
THE BOOKS
Adjustment Entries—Kinds and Place of Record.—In [Chapter XV] it was shown that the records as they are usually kept do not reflect the true condition of the business at any time during the fiscal period. For this reason before summarizing the book record for the current period it is necessary to bring onto the books a number of entries the purpose of which is to “adjust” the mixed accounts and thus make the ledger reflect the true condition. These adjustments may be effected by entry made directly on the face of the ledger, but it is better to run them through the journal, thus making it possible to give ample explanation. A further advantage of first recording the adjustment entries in the journal is that in this way all such entries appear in one place in the books of account. The ledger should always be kept as a book of secondary entry, with supporting data in some book of original entry.
Seven types of adjustment entries are needed for the ledger of a mercantile concern. They are:
- 1. Merchandise Inventory
- 2. Depreciation
- 3. Bad Debts
- 4. Accrued Income
- 5. Deferred Expenses
- 6. Accrued Expenses
- 7. Deferred Income