QCE Accounting - Unit 4 - Complete accounting process for a sole trader business

Complete Accounting Process, Adjustments and Closing | QCE Accounting

Learn the complete accounting process, balance day adjustments, accrual accounting, closing entries and reversing entries for QCE Accounting.

Updated 2026-05-18 - 4 min read

The complete accounting process turns source documents into financial statements. It begins with transactions and ends with reports, closing entries and sometimes reversing entries. Each step exists to make the final reports accurate under accrual accounting.

Accrual accounting records income when earned and expenses when incurred, not simply when cash changes hands. This is why balance day adjustments are needed. They update accounts for amounts that have been earned, incurred, prepaid, accrued, used or not yet received in cash.

Process overview

| Stage | Purpose | |---|---| | Source documents | Provide evidence of transactions | | Journals | Record transactions in chronological order | | Ledgers | Classify transactions by account | | Trial balance | Checks total debits equal total credits before adjustments | | Balance day adjustments | Update accounts for accruals, prepayments, depreciation, inventory and doubtful debts | | Adjusted trial balance | Checks equality after adjustments | | Financial statements | Report profit, position and cash flows | | Closing entries | Close income, expense and drawings accounts | | Post-closing trial balance | Shows permanent accounts only | | Reversing entries | Optional entries to simplify later recording of some accruals and prepayments |

Balance day adjustments

Common adjustments include:

| Adjustment | Why needed | |---|---| | Accrued expense | Expense incurred but not yet paid | | Prepaid expense | Cash paid but future benefit remains | | Accrued revenue | Revenue earned but not yet received | | Unearned revenue | Cash received before revenue is earned | | Depreciation | Non-current asset benefit consumed | | Bad debts and doubtful debts | Receivables unlikely to be collected | | Inventory adjustment | Closing inventory and write-downs affect cost of sales and assets |

Each adjustment affects at least one Statement of Profit or Loss account and one Statement of Financial Position account. That is why adjustments change both profit and financial position.

Closing entries

Income and expense accounts are temporary. They measure one period only. At the end of the period, they are closed to a profit or loss summary account, and the resulting net profit or loss is transferred to owner's equity. Drawings is also closed to owner's equity because it is an owner withdrawal for the period.

Closing entries ensure the next period begins with zero balances in income, expense and drawings accounts. Permanent accounts such as assets, liabilities and capital carry forward.

Reversing entries

Reversing entries are optional entries made at the start of the next period to reverse certain adjustments. They simplify later cash recording for accrued expenses, accrued revenues and some prepayments or unearned revenues. For example, if wages owing were accrued at balance date, reversing the entry next period lets the full wage payment be recorded normally when paid.

Reversing entries do not change the total effect over time. They change the convenience of recording next period.

Accrual profit versus operating cash

Net profit and net cash from operating activities differ because income and expenses are not always cash receipts and payments in the same period. Depreciation reduces profit but not cash. Credit sales increase profit before cash is collected. Paying accounts payable reduces cash for purchases that may have been recognised earlier.

Worked example

Quick check

Sources

• QCAA Accounting subject page
• QCAA Accounting 2025 syllabus
• AASB Conceptual Framework
• ATO accounting for GST in your business