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Adjustments and the Matching Principle

4 dot points across 4 inquiry questions. Click any dot point for a focused answer with worked past exam questions where available.

How do we adjust an expense or income for amounts owing or paid in advance at the year end?

Account for accruals and prepayments of expenses and income, and show them in the financial statements
A simple answer to the N(A)-Level Principles of Accounts outcome on accruals and prepayments. How to adjust an expense for amounts owing or prepaid, where each appears in the statement of financial position, and a worked calculation.
9 min answer →

How do we spread the cost of a long-lasting asset over the years it is used?

Calculate depreciation using the straight-line and reducing-balance methods and show it in the accounts
A simple answer to the N(A)-Level Principles of Accounts outcome on depreciation. Why depreciation is charged, the straight-line and reducing-balance methods, and how accumulated depreciation and net book value are shown.
10 min answer →

What do we do when a customer will not pay, and how do we allow for likely future losses?

Account for irrecoverable debts and an allowance for doubtful debts at the year end
A simple answer to the N(A)-Level Principles of Accounts outcome on irrecoverable debts. How to write off a debt that will not be paid, how an allowance for doubtful debts works, and how each is shown in the statements.
9 min answer →

Why do we match expenses to the income they help to earn in the same period?

Explain the matching principle and the accrual basis, and why year-end adjustments are needed
A simple answer to the N(A)-Level Principles of Accounts outcome on the matching principle. What matching and the accrual basis mean, why they differ from cash, and why adjustments are needed at the year end.
8 min answer →