Definition:
An accumulated adjustments account is a temporary account used in the accounting cycle to hold adjusting entries that affect the balance sheet. It’s a holding place for adjustments that need to be made to the balance sheet accounts at the end of an accounting period.
Common types of adjustments that might be recorded in the accumulated adjustments account:
- Prepaid expenses: Adjustments to prepaid expenses to reflect the portion of the expense that has been used up during the period.
- Unearned revenues: Adjustments to unearned revenues to reflect the portion of the revenue that has been earned during the period.
- Depreciation: Adjustments to depreciate long-term assets to reflect their wear and tear over time.
- Accrued expenses: Adjustments to record expenses that have been incurred but not yet paid.
- Accrued revenues: Adjustments to record revenues that have been earned but not yet received.
Once the adjusting entries have been posted to the accumulated adjustments account, the account is closed out at the end of the period. The adjustments are then reflected in the balance sheet accounts.
The accumulated adjustments account is an important tool in the accounting cycle, as it helps ensure that financial statements are accurate and reflect the true financial position of the business.
