Year-end adjusting entries in the statements
How year-end adjusting entries are proposed, supported, reviewed and corrected in a client's statements, and why they do not roll forward.
By Achekam · · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
The client's trial balance arrives, and it is not the trial balance the statements need. The insurance paid in advance is all in expenses. The December electricity bill is nowhere. Depreciation stopped in August. The loan from the director sits in sales. Every set of small-company statements starts with a list of adjusting entries, and the quality of that list decides whether the statements are right and whether anyone can later see why they differ from the client's books.
This article covers the common adjustments, how to record and support each one, who should review them, how to correct a wrong one, and what happens to them in the next year.
Typical year-end adjustments for a small client
Most adjustments fall into a few families:
| Adjustment | Example |
|---|---|
| Accruals | Year-end utilities, audit or accounting fee, interest on a loan not yet charged |
| Prepayments | Insurance, licences and rent paid in advance |
| Depreciation | Charge for assets the client did not depreciate, or depreciated wrongly |
| Inventory | Bringing the ledger to the year-end count, and writing down obsolete stock |
| Receivables | Writing off debts that will not be paid; an allowance where the framework requires one |
| Provisions | Leave pay, bonuses, warranties, legal claims |
| Tax | The year's current and deferred tax |
| Reclassifications | A loan split between current and non-current; a director's loan out of sales |
ACCA's article on adjustments to financial statements explains how to process the main post-trial-balance adjustments: inventory, accruals and prepayments, interest, depreciation, irrecoverable debts and allowances for receivables. It is a good refresher for a junior preparing a first file.
Depreciation deserves a word on its own. Achekam does not calculate depreciation in the statements. It presents the depreciation in the trial balance, flags when the charge does not agree with the movement in accumulated depreciation, and lets staff post a year-end adjusting entry to correct it. The calculation behind that entry is the preparer's, from the client's register or the firm's own schedule.
Recording each entry with its reason and support
Each adjusting entry should be able to answer a reviewer's three questions without the preparer in the room: what is it, why is it needed, and what proves the amount?
- Description: "Accrue December electricity, invoice received in January" rather than "accrual".
- Reason: the accounting reason, such as cut-off, or a misallocation found on review.
- Support: the invoice, the count sheet, the loan statement or the calculation, filed with the working papers and referenced from the entry.
- Reference: a number, so the entry can be cited in review notes and in the letter to the client.
In Achekam's Studio, staff post year-end adjusting entries against the set of statements. From the mapped trial balance and those entries, the Studio builds the draft with every figure calculated in code, including the directors' report, the primary statements, policies, notes and a detailed income statement, and a block a person edited is kept when the draft is rebuilt.
Who reviews entries before they reach the statements
The person who proposes an adjustment should not be the only person who has looked at it. In Achekam, journals proposed from documents, bank lines or adjustments are only candidates, and only a person can approve and post one; AI is refused both steps. For a set of statements, that means an adjusting entry reaches the figures because a named person decided it should.
A sensible review rule for a firm: the manager reviews every adjusting entry above a level the firm sets, and all judgemental ones, such as provisions and write-downs, whatever their size. The reviewer checks the support, not just the arithmetic.
On audit engagements, keep the audit team's adjustments separate from the client's own year-end entries. Staff record an audit adjustment on a lead schedule line, with a reason, and findings can be raised from a working paper and closed or withdrawn. The distinction matters for the summary of uncorrected misstatements and for the representation letter.
Reversing a wrong entry rather than deleting it
A wrong adjusting entry is reversed in Achekam, with who reversed it and why, and never deleted. Then the right entry is posted. The file keeps the full history: the original entry, its reversal with the reason, and the replacement.
This matters most at review. A reviewer who sees an entry, its reversal and a replacement can follow the thinking. A reviewer who sees only a final figure that differs from the previous draft has to ask.
Where the records involved are under record governance, Achekam's Record Governance log shows who did what, when and with what result, can be filtered, and can be checked for an unbroken chain. It needs the AUDIT_LOG_VIEW permission and covers governed records rather than every screen, so the adjusting-entry history on the statements is the first place to look.
Why adjusting entries do not roll forward
When staff roll a set of statements forward to the next year, Achekam carries the settings, policies, notes and wording, and rebuilds every figure from the new trial balance. Adjusting entries, typed comparatives and signatures are not carried forward.
That is the right design. Last year's adjustments belong in last year. If the client posted them in its books, the new trial balance already reflects them. If it did not, carrying the entries forward would hide the problem; instead, the opening balances in the new trial balance will not agree with last year's issued statements, and that difference is the signal to act. How roll-forward works is covered in rolling statements forward to the next year.
Telling the client which entries to post in its own books
Most small clients need to post the year's adjustments in their own books so that next year starts from the right place. Send the client a numbered list once the statements are approved, with for each entry the date, the accounts and amounts to debit and credit, and a one-line explanation in plain language.
Follow up when the first months of the new year are posted: check that opening balances in the client's books agree with the issued statements. A worked example in words: after approving a retailer's statements, the manager sends the owner a list of seven entries, including an accrual for the accounting fee and an inventory write-down. Two months later, preparing the first management accounts, the bookkeeper finds the inventory write-down was never posted, posts it with the owner's agreement, and the opening balances then agree. How approved candidates become postings is covered in posting candidates a person approves.
A habit for every file
Before a draft goes to review, read the list of adjusting entries on its own, start to finish. If any entry cannot be understood without opening its support, rewrite its description. The reviewer, the client and next year's preparer will all read that list.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
