Question
Rosewood Capital holds an equity portfolio measured at fair value through profit or loss (IFRS 9), recorded in a Short-term Investments account. Fair value changes are adjusted directly against that account. At January 1, 2025 the portfolio consisted
Statements in this challenge
- Journal EntriesJournal Entry
- Short-term InvestmentsLedger
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 1 — accrual basis of accounting
Adjusting entries exist to move revenue and expense into the period they belong to, regardless of when cash moved. Every adjusting entry touches at least one income statement account and one balance sheet account — and never the cash account, because the cash has either already moved or has not moved yet.
Common mistakes
- Debiting or crediting Cash in an adjusting entry — a reliable sign the entry is wrong.
- Adjusting for the full amount of a prepayment rather than only the expired portion.
- Missing accrued items entirely because no document prompted them — accrued interest and accrued wages are the usual casualties.
Further readingThe 5 types of adjusting entry