Adjusting Entries
Adjusting entries ensure revenues and expenses are recorded in the correct period. Master accruals, deferrals, depreciation, and other end-of-period adjustments.
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Study Tips
- ✓Identify whether you're dealing with an accrual or deferral
- ✓Accruals: recording what happened but wasn't yet recorded
- ✓Deferrals: adjusting what was recorded before it happened
- ✓Draw timelines to visualize when cash moves vs. when the event occurs
Common Mistakes to Avoid
The most common mistakes involve confusing accruals with deferrals. Remember: accruals record revenue earned or expenses incurred that haven't been recorded yet. Deferrals adjust amounts that were recorded but haven't been earned or used yet.
Adjusting Entries FAQs
Common questions about adjusting entries
Accruals record revenues earned or expenses incurred that haven't been recorded yet (cash hasn't moved). Deferrals adjust amounts where cash moved before the revenue was earned or expense was incurred.
Adjusting entries ensure that financial statements follow the matching principle and revenue recognition principle. They record revenues when earned and expenses when incurred, regardless of when cash is exchanged.
Adjusting entries are made at the end of each accounting period (monthly, quarterly, or annually) before preparing financial statements. They're made after the unadjusted trial balance but before the adjusted trial balance.
Related Topics
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