Adjusting Entries

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Adjusting entries are a crucial step in the bookkeeping cycle. They ensure that your financial statements accurately reflect your business's financial position at the end of an accounting period.


Common types of adjusting entries include:

  1. Prepaid expenses: Expenses paid in advance but not yet used
  2. Unearned revenue: Money received for goods or services not yet provided
  3. Accrued expenses: Expenses incurred but not yet paid
  4. Accrued revenue: Revenue earned but not yet received
  5. Depreciation: Allocating the cost of assets over their useful life


Why are adjusting entries important?

- They align your books with the accrual basis of accounting

- They ensure expenses and revenues are recorded in the correct period

- They provide a more accurate picture of your financial health


When making adjusting entries, always document your reasoning. This helps in future reference and audits.


Remember, the goal is to match revenues and expenses to the period in which they occurred, not necessarily when cash changed hands.


Edited by: Karla Pacheco

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