Which Accounts Would Normally Not Require An Adjusting Entry?

What Account is Never Affected By Adjusting Entries

There are four types of Accounts, but out of these four accounts, one account which is never required an Adjusting Entry is a cash account. Other three accounts are not usually required an adjusting entry. All of these are expressed below:

1. Cash Account

Cash Account is never required an adjusting entry as it follows Cash Basis of Accounting System and not Accrual Basis of Accounting System. We record only those transactions in which cash is involved. So, there is not need to make Adjustments for the accounts involved in a business transaction under Cash System of Accounting.

2. Capital Or Owner’s Equity

Capital, Owner’s Equity or Equity or Capital Stock is usually not required an adjusting entry. At the end of the accounting period, we prepare Statement of Retained Earnings. Here, usually, we record opening capital and then add net profit or net income and deduct dividend in order to calculate ending balance of capital or equity. In case proprietorship and partnership, we prepare Statement of Owners' Equity and Statement of Partners' Equity respectively.

3. Fixed Assets / Non Current Assets

Fixed Assets / Non Current Assets are usually not affected during adjustment process so fixed assets are usually not required adjusting entries. Previously, these required an adjusting entry but now due to change in the adjusting entry of fixed assets, we usually not required to do so.

Previously, we record the adjusting entry for Fixed Assets:

                          Depreciation Expense a/c  XXX

 

                                                                    Fixed Assets a/c  XXX

 

                                          (Depreciation On Fixed Asses Recorded)

 

But, now due to changes, we record the following entry:

                        Depreciation Expense a/c  XXX

 

                                                                 Accumulated Depreciation a/c  XXX

 

                                           (Depreciation recorded for the period )

 

Only at the end of the accounting period, the Contra Asset Account i.e., Accumulated Depreciation or Accumulated Amortization is deducted from non currents assets including both Tangible and Intangible Assets. We deducted accumulated depreciation from fixed assets / non current assets at the end of the accounting period in order to calculate fixed assets’s book value.

4. Drawings Account

In case of Sole Proprietorship or Partnership, Drawings Account is usually not required an adjusting entry as it is not concerned with the business matters as business is a separate legal entity separated from its owners. At the end of the accounting period, we deducted drawing account in order to calculate ending capital account. In case of company or corporation, Dividend Account is not required an adjusting entry.

On the other hand under Accrual Basis of Accounting System, we need to adjust the accounts recorded as either the whole amount or some portion of total amount is accrued, prepaid, earned or unearned during the period for the specified accounts. For example, Outstanding Rent of Rs. 10000 for the month is due and not paid to owner of the building. So, we need to adjust the rent expense account and outstanding rent account which is not paid to owner but the services are received or enjoyed by us (tenant) during the month.