Writing accounts is easy. Specifically in an ERP Software like Tally.ERP 9, your job is super easy. You just need to press some  keyboard  keys and the software will take care of the things. But a machine is, after all, a machine. It  will only do the things which it supposed to do.  A machine doesn’t have its own logic or a human brainer. So, you need accounting adjustments to clean your book of accounts.

Why we need accounting adjustments

A software is a set of instructions given to a machine.

You input the data to the machine, Machine will give you a pre-defined output as per the program implemented by the coder. So, you can’t rely totally on a machine language. You must be aware of the fact what you are doing and what result you are expecting from the machine. If you are unaware of this stuff, then you will have a hard time struggling with the machine !

Meet, Manish, one of the  student contacted me a few months ago. He was complaining that his How an Art Student created her Balance Sheet with my help?Balance Sheet is a mess in Tally.ERP 9. When I reviewed his Balance Sheet, I observed that He purchased a Machinery worth of Rs. 25lac and grouped that Machinery under CAPITAL Account! Now it is a clear example of mistake of the grouping of ledgers which every accountant must know how to group ledgers. if you assign a wrong group to a ledger your balance sheet will mess up for which you can’t blame your accounting software!

It is supposed that an accountant must be aware of the basic rules of accounting  rules when he is working with accounts department. If he is not aware of such rules, then he will have a hard time to manage and understand his balance sheet.

Preparing a balance sheet is not a difficult task. Any person can create a balance sheet without any extensive study or a special educational background. but finalizing a balance sheet is a difficult task and only a person who is well versed with accounting principles and accounting can do it.

Unfortunately, most of the people around us doesn’t want to understand these basic things. We all want instant result without going deep but this is not going to help you in building a sound career in Accounting.

Understanding Accounting Adjustments

accounting adjustments are related to the fundamentals of the accountancy and this is a very important exercise in finalization of accounts. Accounting adjustments help to prepare a clean and easy to understand the balance sheet and gives your balance sheet a professional look. Also, your boss will be very happy if you give him a clean balance sheet as most of the boss are never happy with the balance sheet prepared by an accountant.

See this ledger for an example

accounting adjustments

Can you identify what is wrong here? Put your answer in the comment section and if you are enrolled my Tally.ERP 9 online course then you have the access to this sample data. You need to correct this data and give me a clear balance sheet after amending the mistake.

Here is one more entry to give you a more clear picture of the possible mistake.

finalisation of Balance Sheet

There are two Issues here in this case. Identify those 2 issues.

Tally Mentor’s PRO -Hint :   One issue is related  to pass a journal entry to adjust your accounts while the another issue is related to the grouping of the ledger.

So, be ready. You can post your reply in a comment, section while the paid students have to upload their corrected balance sheet to the Dropbox as there is more assignment for them in the Company data which I have uploaded to the Dropbox.

Accounting Adjustments is not just limited to such 2- 3 things.In fact, there is a lot of things to look after. This is only a sample of accounting adjustments which is needed to take care while finalizing the balance sheet.

If you find this tutorial interesting then I have some questions for you.

What you do when the current liabilities is showing in the Assets side in your Balance ?

How do you feel when sundry debtors are showing Credit Balance ?

Do you feel irritating when your balance sheet is showing a negative cash balance ? what do you in that situation ?

Finally, whom do you call for a help when your boss asked you to give him a clean balance sheet within next 2 days!

Answer your question honestly, in the comment section, I would love to see your answer and how  to deal with such situation.

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5 thoughts on “accounting adjustments A detailed guide to become an expert in Accounts

  1. ratish jha says:

    how can create opening cost center in tally

  2. K K Dixit says:

    comment no. 1
    current liability showing on asset side is case of wrong Grouping. It must have been grouped under liabilities head.

    Comment no.2

    Debtors showing the credit balance is the case of receiving more payments from them either as advance or during the year for which they were liable or under posting of Sales.

    Comment no.3

    Cash showing negative balance means the receipt of cash is posted properly.

  3. 5.42 Rs is a debit balance it means it should go in sundry debtors as current asset and cash in hand Rs.9210,on liabilities however no capital shown so it’s gone in pnl ,in adjustment Sundry creditor debit and credit sundry debtors

  4. Rejoy Mohan says:

    Here the customer ABC, has been grouped as a Sundry Creditor. Instead, it should have been grouped as a Sundry Debtor.

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