Adjusting Entries

Introduction to Adjusting Entries

mini-lectures: Adjusting Entries Adjusting entries are journal entries usually made at the end of an accounting period to allocate income and expenditure to the period in which they actually occurred. The revenue recognition principle is the basis of making adjusting entries that pertain to unearned and accrued revenues under accrual-basis accounting. They are sometimes called Balance Day adjustments because they are made on balance day.

Based on the matching principle of accrual accounting, revenues and associated costs are recognized in the same accounting period. However the actual cash may be received or paid at a different time.

Most adjusting entries could be classified this way:

Prepayments ( Deferral - cash paid or received before consumption) Accrual - cash paid or received after consumption
Expenses Prepaid expenses: for expenses paid in cash and recorded as assets before they are used Accrued expenses: for expenses incurred but not yet paid in cash or recorded
Revenues Unearned revenue: for revenues received in cash and recorded as liabilities before they are earned Accrued revenues: for revenues earned but not yet recorded or received in cash

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