Adjusting Entries
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Bookkeeping Adjusting Entries are entries made at the end of an accounting period. They ensure that the financial statements accurately reflect the company's financial position and performance. These entries are necessary to record transactions or events that are not captured in the regular day-to-day transactions.
There are several types of bookkeeping adjusting entries, including:
Accrued Revenue: This type of entry is used to record revenue that has been earned but not yet received or recorded.
For example, if a company provides services to a customer in December but does not receive payment until January, an adjusting entry is made to recognize the revenue in December.
Accrued Expenses: This entry is used to record expenses that have been incurred but not yet paid or recorded.
For example, if a company receives a utility bill at the end of the month but the payment is due in the following month, an adjusting entry is made to recognize the expense in the current period.
Prepaid Expenses: This type of entry is used to record expenses that have been paid in advance but have not yet been used or consumed.
For example, if a company pays for insurance coverage for the entire year upfront, an adjusting entry is made each month to allocate the expense over the coverage period.
Unearned Revenue: This entry is used to record revenue that has been received but not yet earned or delivered.
For example, if a company receives payment from a customer for services that will be provided over a period of time, an adjusting entry is made each month to recognize the revenue as it is earned.
Depreciation: This entry is used to allocate the cost of a long-term asset over its useful life. It recognizes that assets lose value over time due to wear and tear, obsolescence, or other factors.
Different methods can be used to calculate depreciation, as I explained in the depreciation quick insight.
These are just a few examples of the types of bookkeeping adjusting entries. The specific entries needed will depend on the company's individual circumstances and accounting policies.
It's important to accurately record these entries to ensure that the financial statements provide a true and fair view of the company's financial position and performance.
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