Adjusting entry
An adjusting entry is a journal entry made at period end to bring accounts onto an accrual basis before financial statements are prepared; each one updates at least one income-statement account and one balance-sheet account.
FrameworkAccrual accounting
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At period end, four categories of adjusting entry bring the books onto an accrual basis: accruals recognise costs incurred but unpaid, prepayments expense the consumed portion of a prepaid cost, deferred revenue recognises the earned portion of cash already received, and depreciation allocates asset cost to the period. Every entry touches both an income-statement and a balance-sheet account.
Where it fits
SubjectFinancial AccountingCoreTopicDouble-Entry & the Bookkeeping CycleCoreTopicAccrual Accounting & RecognitionCore
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PracticeCORE
Which of the following statements about adjusting entries is correct?
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