Manufacturing Accounting Adjustments
Manufacturing Accounting Adjustments
Closing Stock Adjustments
- Closing Stock Adjustment: At the end of an accounting period, the value of closing stock is adjusted based on the physical stock count and this is reflected in the final accounts.
- Inventory Adjustment: Any discrepancy between actual physical count and the system count is adjusted in the books. This could be due to multiple reasons like theft, damages, or data entry errors.
- Cost of Goods Sold (COGS) Adjustment: The cost of goods sold is adjusted based on the final closing stock value. A higher closing stock value means lower cost of goods sold, and vice versa.
Provisions and Reserves
- Provision for Depreciation: Reduction in the value of assets over time is accounted for in the form of depreciation. Provision for depreciation is made at the end of each accounting period to adjust the value of assets.
- Provision for Doubtful Debts: Provision for doubtful debts is made to adjust the value of Trade Receivables, considering the possibility of certain debts turning bad or uncollectable.
- Reserve for Repairs and Renewals: Reserve for repairs and renewals is made to account for future expenses related to maintenance of the machinery and equipment used in manufacturing.
Accruals and Prepayments
- Accrual Adjustment: Accrual adjustment is made for expenses that have been incurred but not yet paid. This is to ensure that expenses are recorded in the period they relate to, not when they are paid.
- Prepayment Adjustment: If some expenses have been paid in advance, these are recorded as prepayments and adjusted against the expenses when they are incurred.
Rectification of Errors
- Correction of Errors: If certain accounting errors are noticed, they are rectified and appropriate adjustments are made in the books of accounts.
- Reversal of Entries: Sometimes, wrong accounting entries need to be completely reversed and the correct entries need to be recorded. This process is termed as reversal of entries and acts as a type of adjustment.
Revaluation of Assets
- Revaluation of Assets: The value of an asset may change due to market fluctuations. Any increase or decrease in the value of an asset is recorded as an adjustment in the accounts.
Amortisation of Intangible Assets
- Amortisation: It is the process of gradually writing off the initial cost of an intangible asset over a period. This is done by recording an amortisation expense each year which corresponds to the reduction in the value of the asset.