What are adjusting entries?
Don’t underestimate this topic! It is a concept/principle necessary for understanding Accounting. In order to measure properly the period’s income and to bring related asset and liability accounts to correct balances for the financial statement, adjusting entries are needed. At the end of the accounting period, any transactions (such as errors, omissions, corrections) that have not been recognized and recorded (due to whatever causes!) must be recorded. Recording these entries is called adjusting entries. Adjusting entries are journalized and usually done at the end of the accounting period. Some examples are: amortization, interest that is owed on loans, office supplies that have been used, wages that have not been paid, but you have incurred, etc. Adjusting entries can be divided into five categories: 1. Prepaid expenses 2. Depreciation 3. Accrued expenses 4. Accrued revenues 5.
