Adjusting Entries
Journal entries made at the end of an accounting period to update account balances.
Adjusting entries ensure revenue and expenses are recognized in the correct period under accrual accounting. The four main types are accrued revenues, accrued expenses, deferred revenues, and deferred expenses. They are always posted before generating period-end financial statements to update balances changed by time or unrecorded events.
Example
At month-end, a business makes adjusting entries: $1,000 in equipment depreciation, $500 in accrued loan interest, and $2,000 of prepaid insurance converted to expense.
Why It Matters for Your Business
Without adjusting entries, your financial statements won't reflect economic reality—revenue and expenses could appear in the wrong periods.
Practical Tips
- •Maintain a standard list of recurring adjusting entries to ensure nothing is missed at period-end.
- •Review adjusting entries with your accountant quarterly to make sure amounts are reasonable.
Related Terms
More Accounting Terms
Accounts Payable
Money owed by a business to its suppliers or creditors for goods or services received but not yet paid for.
Accounts Receivable
Money owed to a business by its customers for goods or services delivered but not yet paid for.
Accrual Accounting
An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.
Asset
Any resource owned by a business that has economic value and can provide future benefits.
Balance Sheet
A financial statement showing assets, liabilities, and equity at a specific point in time.
Related Financial Guides & Resources
Automate Your Finances with AI
FiscalInsights uses AI to automate bookkeeping, track expenses, and forecast cash flow — so you can focus on your business.
Start Free Trial