Accounting Adjusting Entries
Bookkeeping Adjusting Entries are entries made at the end of an accounting period. They ensure that the financial statements accurately reflect the company's financial position and performance. These entries are necessary to record transactions or events that are not captured in the regular day-to-day transactions. The entries are based on the accrual method of accounting and follow the matching and revenue recognition principles..
There are several types of bookkeeping adjusting entries, including:
Accrued revenue: If a company has earned revenue but has not invoiced or received payment, an adjusting entry is made to recognize the revenue and record the corresponding accounts receivable.This ensures that the revenue is properly recognized in the correct accounting period.
Debit - Accounts Receivable
Credit - Revenue
Accrued expenses: If a company has incurred expenses but has not yet been invoiced or paid for them, an adjusting entry is made to recognize the expenses and record the corresponding accounts payable.This ensures that the expenses are properly recognized in the correct accounting period.
Debit - Expense
Credit - Accounts Payable
Prepaid expenses: If a company has paid for expenses in advance, such as insurance or rent, an adjusting entry is made to allocate the prepaid amount to the appropriate accounting period.
This ensures that the expenses are recognized as they are incurred.
Debit - Expense
Credit - Prepaid Expenses
Unearned revenue: If a company has received payment for goods or services that have not yet been provided, an adjusting entry is made to defer the revenue until it is earned.
This ensures that the revenue is recognized in the correct accounting period.
Debit - Unearned Revenue
Credit - Revenue Earned
Depreciation: If a company owns long-term assets, such as buildings or equipment, an adjusting entry is made to allocate the cost of the assets over their useful lives.
This recognizes that assets lose value over time due to wear and tear, obsolescence, or other factors.The entry allocates the cost of a long-term asset over its useful life.
Different methods can be used to calculate depreciation, as I explained in the depreciation quick insight.
Debit - Depreciation Expense
Credit - Accumulated Depreciation
Accrued interest: If a company has earned interest on investments or loans but has not yet received payment, an adjusting entry is made to recognize the interest revenue and record the corresponding accounts receivable.This ensures that the interest is properly recognized in the correct accounting period.
Debit - Interest Expense
Credit - Accrued Interest Payable
Bad Debts: Bad debts and Allowance for Uncollectible Accounts are used to estimate uncollectible accounts receivable. The entry identifies the part of accounts receivable that the company does not expect to be able to collect. When it is definite that a certain amount cannot be collected, the previously recorded allowance for uncollectible account and accounts receivable accounts are adjusted.
Bad Debt Estimated
Debit - Bad Debt Expense
Credit - Allowance for Uncollectible Accounts
Account Determined to be Uncollectible
Debit - Allowance for Uncollectible Accounts
Credit - Accounts Receivable
Accounting Errors: Entries used to correct accounting mistakes or adjust the estimates that were previously made.
These are just a few examples of the types of bookkeeping adjusting entries. The specific entries needed will depend on the company's individual circumstances and accounting policies.
It's important to accurately record these entries to ensure that the financial statements provide a true and fair view of the company's financial position and performance.
Adjusting Entries Video
Additional Adjusting Entries Videos