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Adjusting Entries in Accounting

Adjusting Entries in Accounting

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Published by: Wasipfc on Apr 12, 2010
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09/28/2010

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Adjusting Entries in Accounting
Description:
 Adjusting Entries are journal entries that are made at the end of the accounting period to adjust expenses and revenues to the accounting period where they actually occurred.Learn from examples of each type in this tutorial.
 College-Cram can help you get
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Adjusting Entries in Accounting - Introduction
Adjusting Entries are journal entries that are made at the end of the accounting period, to adjustexpenses and revenues to the accounting period where they actually occurred. Generally speaking,they are adjustments based on reality, not on a source document. This is in sharp contrast to entriesduring the accounting period (such as utility bills or fees for services rendered) that depend onsource documents.Preparing adjusting entries is a key step in the ongoing
, coming right after you'vecompleted
.
Types of Adjusting Entries
There are five basic types of adjusting entries:
Accrued revenues
(also called accrued assets) are revenues already earned but not yetpaid or recorded.
Unearned revenues
(or deferred revenues) are revenues received in cash and recorded asliabilities prior to being earned.
 
Accrued expenses
(also called accrued liabilities) are expenses already incurred but not yetpaid or recorded.
Prepaid expenses
(or deferred expenses) are expenses paid in cash and recorded as assetsprior to being used.
Other adjusting entries include 
of fixed assets,
allowances
for bad debts, andinventory adjustments.
Examples of Adjusting Entries
By their nature, all adjusting entries will involve a pairing of either an asset or liability account witha revenue or expense account. Here are some typical examples of adjusting entries of each typementioned above:
Accrued revenues
-- Say your company provided $1,600 worth of consulting services to theBogus Manufacturing Company over the past month, and today is the end of the accountingperiod. The consulting hours will be billed and collected next month, well past when you'llbe 
,
, closing entries, etc. In this case, youneed an adjusting entry to account for the unbilled services:
 
Adjusting EntryDebitsCredits
Accounts Receivable1,600.00Consulting Fees Earned 1,600.00
Unearned revenues
-- Bogus Manufacturing Company purchased an annual service contractfrom you for $24,000, which they paid up front. If only three months of their contract arewithin this accounting period, then that means nine months of the contract's revenues areunearned. In order to properly reflect reality, you need an adjusting entry:
Adjusting EntryDebitsCredits
Unearned Revenue18,000.00Revenue 18,000.00
Accrued expenses
-- If you pay weekly salaries and the accounting period ends mid-week,you have accrued salary expenses that you haven't yet paid. You'll need an adjusting entryto reflect the as-yet unpaid salaries:
Adjusting EntryDebitsCredits

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