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Adjusting Entries

Introduction

Adjusting entries are made to update the accounts in an accounting system. They are important to get the accounts to their correct balances at the end of the accounting period.

What's in Here

This chapter will teach you everything about adjusting entries.

Adjusting entries are prepared at the end of the accounting period for: accrual of income, accrual of expenses, deferrals, prepayments, depreciation, and allowances.

In this chapter, you will learn the different types of adjusting entries and how to prepare them. You will also learn the second trial balance prepared in the accounting cycle – the adjusted trial balance.

Image link to Introduction to AJEs
Lesson 1

Introduction to Adjusting Journal Entries

Learn the purpose and different types of adjusting entries. There are at least six types of adjusting entries that are prepared at the end of the accounting period.
Image link to Accrued Income
Lesson 2

Adjusting Entry for Accrued Income

Accrued income refers to income already earned but not yet received. Since it is earned, the company should properly include it as income.
Image link to Accrued Expense
Lesson 3

Adjusting Entry for Accrued Expense

Accrued expenses are expenses already incurred but not yet paid. Since they should be included as expense, the company should make necessary adjusting entries to recognize them.
Image link to Unearned Income
Lesson 4

Adjusting Entry for Unearned Income

Unearned income, also called deferred income or revenue, refers to income already collected but not yet earned. These are to be properly classified as liabilities, not income. There are two methods in recording deferrals: the income method and the liability method.
Image link to Prepaid Expense
Lesson 5

Adjusting Entry for Prepaid Expense

Prepaid expenses are those paid in advance. In other words, these are expenses not yet incurred but have already been paid. There are two methods in recording prepayments: the expense method and the asset method.
Image link to Depreciation Expense
Lesson 6

Depreciation Expense

Adjusting entries are also prepared for depreciation. Depreciation is the process of allocating the cost of a fixed asset over its useful life.
Image link to Bad Debts Expense
Lesson 7

Bad Debts Expense

Receivables should be presented in the balance sheet at net realizable value. Allowances for uncollectible accounts or bad debts are measured and recognized at the end of the accounting period.
Image link to Adjusted Trial Balance
Lesson 8

Adjusted Trial Balance

An adjusted trial balance is prepared after adjusting entries are made and posted to the ledger. This is the second trial balance prepared in the accounting cycle.
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