Adjustments
Some costs and revenues do not belong to the month the money moved. Rent paid a year ahead is not January's expense. Electricity used in March but billed in April is still March's cost.
Adjustments put them in the right period.
Accruals and prepayments
Prepayment — you paid in advance. Insurance for the year, rent for six months. The cash left now; the expense belongs to the months ahead.
Accrual — you used it but have not paid. Electricity consumed, work done by a contractor not yet invoiced. The expense belongs now; the cash leaves later.
Without these, profit lurches: one enormous month followed by several artificially good ones. With them, each month carries what it actually consumed.
Creating a schedule
Create adjustment schedule records:
- Amount and the period it spreads over
- The debit and credit account codes it posts to
- A counterparty, where relevant
- Why this needs recognition over time — a note explaining the schedule
The screen then tracks scheduled value, remaining value, and what is still to be recognised over time, so you can see at a glance what is left to unwind across all active schedules.
Posting an adjusting journal
For one-off corrections, post adjusting journal writes a direct entry with a journal title, the debit and credit accounts, an amount, and an adjustment note.
Use this for genuine corrections — a misposted category, a reclassification your accountant asked for. Every journal carries its explanation, which is what makes it defensible later.
Adjust forward, don't rewrite history
If a period is already closed, correct it with an adjustment in the current period rather than reopening. Reopening a closed month invalidates reports you have already shared and returns you may have already filed.
A worked example
You pay 1,200,000 in January for twelve months of insurance.
Without an adjustment: January shows a 1,200,000 expense. January looks awful; February to December look better than they are.
With a prepayment schedule: January carries 100,000, and so does every month after. Each month shows the true cost of being insured, and the remaining value sits on your balance sheet as something you have already paid for.
When to use them
| Situation | Use |
|---|---|
| Paid annually, used monthly | Prepayment schedule |
| Used now, billed later | Accrual |
| Regular predictable payment | Recurring transaction instead |
| Wrong category on an entry | Adjusting journal |
| Asset cost over years | Depreciation instead |
Related
- Month-end close — post adjustments before closing
- Recurring transactions — for predictable payments
- The General Ledger — where journals land