We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What are Adjusting Entries?

Mary McMahon
By
Updated Feb 18, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Adjusting entries are accounting entries which are designed to compensate for transactions which may not be recorded in the general ledger either because they span multiple accounting periods, or because the transaction did not trigger anything to record. These entries are added at the end of the accounting period before closing the books. Handling adjusting entries can be tricky, and sometimes they can require a judgment call, with some people preferring to leave them to an accountant.

There are two types of adjusting entries. Accruals are expenses or income which occurred before the end of the accounting period, and deferrals are expenses or income which will happen after the accounting period is over. A simple example of an accrual is interest which is earned on a bank account. If the interest is not recorded in an accounting ledger, a false picture of the company's financial health is created, making it necessary to add an adjusting entry to indicate that the interest has been earned, even if it has not yet been paid out.

Another example of an accrual is services which have been rendered, but not yet paid. It is important to note that people performed X amount of services in a given month, even if funds have not yet been received. Likewise, paychecks can be entered as an adjusting entry, indicating that the company will owe money to employees on the basis of the amount of work they have done, even if the paychecks are not yet been issued. For example, if the pay period runs from the 15th to the 15th, but the accounting period closes on the last day of the month, an adjusting entry is needed to reflect the wages earned between the 15th and the last day of the month.

Adjusting entries can be used to account for things like interest earned and paid, paychecks, prepaid expenses, unearned revenue, and so forth. Another example of an adjusting entry is an entry which is designed to account for depreciation and other changes in assets. When a company buys office supplies, for example, the expense is debited, but the supplies are considered an asset, because they have value and the company controls them. As the office supplies are used up, however, the value of the asset drops, and this can be recorded with an adjusting entry. Likewise, appreciation of assets could be recorded with the use of adjusting entries.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGeek researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By anon934960 — On Feb 23, 2014

Can you tell me why is it important to do adjusting entries? What will happen if they are not made? How would not doing them affect my books?

By Speechie — On Aug 09, 2011

@amysamp - I think using your line of thinking of it being an entry that has already occurred works. Just "adjust" your line of thinking a bit. Instead of thinking of it as an entry that has already occurred, think of it as entry that has already occurred but the adjustment that needs to be made is has to go from not entered to entered.

Maybe giving it a line such as "adjust entries by putting them into the books." will also help you remember. Just remember when it comes to adjusting entries your initial reaction needs to be adjusted. Just remembering that your common sense interpretation needs to be adjusted sometimes is all you need to remember the actual definition.

By amysamp — On Aug 08, 2011

IIn learning about adjusting entries for my accounting class I cannot remember what they mean. Adjusting sounds like an entry that needs to be adjusted and therefore it is already established, rather than an entry that has not been made at all!

Does anyone have any suggestions on how to remember this term?

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.