What Are Adjusting Entries?
Adjusting entries are journal entries made at the end of an accounting period to update the accounts and ensure accuracy. They are necessary for accrual accounting and financial statement preparation.
Key Takeaways
- Definition: Entries made to adjust account balances before financial statement preparation.
Purpose: To ensure revenues and expenses are recorded in the correct period.
Types of Adjusting Entries
- Accruals: Adjustments for revenues earned or expenses incurred but not yet recorded.
- Deferrals: Adjustments for prepaid expenses and unearned revenues.
- Depreciation: Allocation of the cost of tangible assets over their useful lives.
- Amortization: Allocation of the cost of intangible assets over their useful lives.
Importance of Adjusting Entries
Adjusting entries are essential for ensuring that financial statements reflect the true financial position and performance of a company.
