ADJUSTING ENTRIES

ADJUSTING ENTRIES
Adjusting entries are accounting journal
entries that convert a company’s accounting
records to the accrual basis of accounting.
An adjusting journal entry is typically made
just prior to issuing a company’s financial
statements.
 ADJUSTING ENTRIES
Two scenarios where adjusting journal
entries are needed before the financial
statements are issues:
> Nothing has been entered in the
accounting records for certain expenses and
revenues, but those expenses and/or revenues
did occur and must be included in the current
period’s income statement and balance sheet.
 ADJUSTING ENTRIES
Two scenarios where adjusting journal
entries are needed before the financial
statements are issues:
> Something has already been entered in
the accounting records, but the amount needs
to be divided up between two or more
accounting periods.
 ADJUSTING ENTRIES
Adjusting journal entries always involve a:
> balance sheet account (Interest Payable,
Prepaid Insurance, Accounts Receivable , etc.)
> income statement account (interest
expense, insurance expense, service revenues
ad etc.)
 ACCRUALS AND DEFERRALS
Accrual – occurs before a payment or
receipt.
Deferral – occurs after a payment or
receipt.
There are accruals for expenses and for
revenues. There are deferrals for expenses and
for revenues.
 ACCRUALS AND DEFERRALS
An accrual of expense refers to the
reporting of an expense and the related
liability in the period in which they occur, an
that period is prior to the period in which the
payment is made.
 ACCRUALS AND DEFERRALS
An accrual of revenues refers to the
reporting of revenues and the related
receivables in the period in which they are
earned, and that period is prior to the period
of the cash receipt.
 ACCRUALS AND DEFERRALS
A deferral of an expense refers to the
payment that was made on one period, but
will be reported as and expense in the later
period.
 ACCRUALS AND DEFERRALS
A deferral of an revenues refers to
receipts in one accounting period, but they
will be earned in future accounting periods.