There might be a number of accounting transactions which might not have been taken into consideration by the time the Trial Balance has been prepared. Some of the reasons for the presence of such transactions are
? Transactions which do not occur in the normal course of business
There are a number of transactions relating to the business which do not occur in the normal course of business. These transactions unless deliberately recorded do not get into the books of accounts.
Examples for such transactions
Stock taken away by the proprietor for personal use
Abnormal loss of stock
? Transactions which have to be recorded only towards the end
There are a number of transactions relating to the business which have to be recorded only at the end of the accounting period. If the trial balance has been prepared before all such transactions into consideration have been taken into consideration, then they stay unrecorded in the books of accounts.
Depreciation on Assets
Expenses – Outstanding/Prepaid
Incomes – Outstanding/Pre-received
? Transactions relating to Error Rectifications
The agreement of a Trial Balance is not a conclusive proof of absence of errors in accounting. Even in case where the trial balance agrees, there may still be errors existing in the books of accounts. These errors if identified subsequent to the preparation of the Trial Balance, need to be rectified which needs journal entries to be passed for rectification.
The transactions which have not yet been journalised, appended to the trial balance are what we call adjustments. Thus we can say that Adjustments are transactions relating to the business which have not been journalised by the end of the accounting period.
Since adjustments are also transactions relating to the business, we need to bring them into the accounting books by journalising them.