Adjusting Entries
Journal entries recorded at period-end to align revenues and expenses with the correct accounting period.
What is Adjusting Entries?
Adjusting entries are journal entries recorded at the end of an accounting period to update account balances under accrual accounting. They ensure revenues are recognized when earned and expenses when incurred, regardless of when cash changes hands. Common types include accruals, deferrals, and depreciation entries.
Example
Example
A company prepays $12,000 for annual insurance on January 1. Each month, a $1,000 adjusting entry moves the balance from prepaid expenses to insurance expense, ensuring the income statement reflects only the actual monthly cost.