The term adjusting entries describes journal entries which are developed at the close of a specific accounting phase, in order to regulate revenues and expenses to the accounting phase where they happened. Essentially, accounting entries are journal entries which convert an organization’s accounting annals at the close of the accounting phase after a trial balance has been organized. Adjusting entries are used to align a business’ reported income and expenses to its current financial position (“Adjusting entries,” 2019). Adjusting entries are developed by closely matching the generated revenues to the company’s expenses under the matching principles. Every adjusted entry will contain a profit and loss statement and a real account. Adjusting entries is a crucial aspect of any accounting sequence.
There are 4 groups of adjusting entries; they are accrued expenses, deferred expenses, accrued revenue, and deferred revenue. Deferred expenses refer to expenses which are paid and are documented as assets prior to being used (Davoren, 2019). Examples of deferred revenue expenses include rent on office space and tangible assets depreciation costs. Deferred revenue refers to the revenues which are received in cash and documented as a liability before it is even earned. Examples of deferred revenue include prepaid insurance policies and annual newspaper subscription. Accrued expenses describes expenses which are already incurred but have not been recorded or paid. Examples include interest payables and salaries payables. The final adjusting entry is accrued revenues, which refer to income, which has been earned but has not been recorded or aid (Davoren, 2019). Some of the examples of accrued revenues include account receivables and interest revenue. These different types of adjusting entries all help to align the reported income and expenses to the financial health of an organization.
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References
Adjusting entries. (2019). Retrieved From https://www.accountingtools.com/articles/2017/5/17/adjusting-entries
Davoren, J. (2019). Four Types of Adjusting Journal Entries https://bizfluent.com/info-8210116-four-types-adjusting-journal-entries.html
