Regularization is an accounting process whose purpose is to obtain the result of the company after a period of time. Normally, this period is one year.
To obtain the result of the exercise of a company it will be necessary to carry out a regularization process. For this, it will be necessary to adjust the inventories, the amortizations and the losses of value. As part of this procedure, the income and expense accounts will have to be transferred to the result for the year.
Regularization accounting process
In order to calculate the result for the year, it is necessary to take into account all expenses and income. Previously, certain adjustments must be made (stocks, depreciation, impairment).
Income and expenses will be recorded in profit or loss as long as they correspond to the same period. The result of the exercise will be obtained by calculating the difference between income and expenses.
Result for the year = Total income – Total expenses
If the expenses are higher than the income, we will talk about the debit balance, while if the income is higher than the expenses, we will find ourselves with a credit balance. When there is a credit balance, we talk about benefits. On the contrary, if a debit balance occurs, we will be in a loss situation.
Once the result is obtained, the Corporation Tax must be applied, which will act as an expense, therefore reducing the result for the year. Since it works as an expense, Corporation Tax must appear in the Profit and Loss Account.
Adjustment and adjustment seats
The seat adjustment and regularization are steps prior to obtaining the result of the exercise.
There are two large accounting adjustment entries:
- Those in which the inventoried amount does not coincide with the accounting balances: It will be necessary to make an entry that adjusts the accounting balance to the actual amount of money.
- Balances that require a valuation correction: The book value will have to be adjusted to the real market value.
Within the inventory regularization, it will be necessary to carry out a specific entry for inventories. To do this, it will be necessary to calculate the change in inventories to adapt the real balance of the final stocks in warehouse.