Adjusting entries are recorded at the end of the accounting period to adjust the amounts that affect more than one accounting period.
There are seven types of adjustments:
Prepaid expenses: When the payment is initially recorded as an asset before they are consumed or used. When consumed these are transferred to related expense accounts.
Unearned revenues: Cash is received in advance before services are rendered to clients. Initially they are recorded as liabilities. In adjustments, they are transferred to the income account as the services are provided.
Accrued revenues: Revenues earned but not yet received in cash or recorded.
Accrued expenses: Expenses incurred but not yet paid or recorded.
Depreciation: Depreciation is a process of allocation of the cost of an asset to expense over its useful life. A portion of this cost is recorded as an expense of the cash period during which the asset is in use.
Bad debt expenses: This adjustment records the portion of credit sales of the period, which is unlikely to be received during a particular accounting period.
Merchandise Inventory (ending): Merchandise inventory unsold at the end of the period (through physical counting) is recorded as an asset (not applicable for a service business).
There are seven types of adjustments:
Prepaid expenses: When the payment is initially recorded as an asset before they are consumed or used. When consumed these are transferred to related expense accounts.
Unearned revenues: Cash is received in advance before services are rendered to clients. Initially they are recorded as liabilities. In adjustments, they are transferred to the income account as the services are provided.
Accrued revenues: Revenues earned but not yet received in cash or recorded.
Accrued expenses: Expenses incurred but not yet paid or recorded.
Depreciation: Depreciation is a process of allocation of the cost of an asset to expense over its useful life. A portion of this cost is recorded as an expense of the cash period during which the asset is in use.
Bad debt expenses: This adjustment records the portion of credit sales of the period, which is unlikely to be received during a particular accounting period.
Merchandise Inventory (ending): Merchandise inventory unsold at the end of the period (through physical counting) is recorded as an asset (not applicable for a service business).
