Chapter summary

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Chapter 3 Summary
Chapter three discusses the adjusting process in accrual accounting. The accrual basis of accounting requires the reporting the revenues that are earned over a specified period and matching the expenses with the revenues that they generate. Adjusting in accrual accounting is the process of updating the accounts at the end of an accounting period, and this process affects the income statement as well as the balance sheet accounts.
Furthermore, the adjusting entries are explained for both the accruals and the deferrals accounts. The Adjusting entries for accruals consist of accumulated revenues and expenses. For an accrued revenue, the adjusting entry debits Accounts Receivable and credits a revenue account while the adjusting entry for an accrued expense debits an expense account. The Adjusting entries for deferrals include unearned revenues and prepaid expenses. The adjusting entry for an unearned revenue debits an unearned revenue account and credits a revenue account. The adjusting entry for an accrued expense debits an expense account such as Wages Expense and credits a liability account such as Wages Payable.
When entering any adjustments, the details such as the type of adjustment, the adjustment reason and its effect on the financial statement if omitted should be included.
Importance of the Topic Covered
Accounting records like any other business records are crucial in any organization it is used by the managers to evaluate the company’s performance and to facilitate the decision-making (Weygandt, et al.

180). Therefore, there is need to keep proper records. Understanding how to make adjusting entries is essential for keeping proper accounting records: determining which account to make the entry and whether to debit or credit. Moreover, matching expenses with the revenue they generate makes the tracking easy and the management will focus on those that generate more revenue for the company to increase their profit margin. It is also important that all the entries made are verified using accounting tools such as trial balance to correct errors if any.

Works cited
Weygandt, Jerry J., et al. “Accounting principles.” Issues in Accounting Education 25.1 (2010): 179-180.