Adjusting Journal Entry
Definition of 'Adjusting Journal Entry'
There are two main types of adjusting journal entries:
* **Revenue recognition** entries are made to record revenue that has been earned but not yet received. For example, a company may make an adjusting entry to record revenue from a sale that was made on credit.
* **Expense recognition** entries are made to record expenses that have been incurred but not yet paid. For example, a company may make an adjusting entry to record the cost of supplies that have been used but not yet paid for.
Adjusting journal entries are important because they ensure that the financial statements are accurate and reflect the true financial position of the company. Without adjusting journal entries, the financial statements would be incomplete and misleading.
Here is an example of an adjusting journal entry:
* **Debit** Accounts Receivable \$100
* **Credit** Sales \$100
This entry records revenue from a sale that was made on credit. The \$100 is debited to Accounts Receivable, which is an asset account, because it represents the amount of money that the company is owed by its customers. The \$100 is credited to Sales, which is a revenue account, because it represents the amount of revenue that the company has earned from the sale.
Adjusting journal entries are made at the end of an accounting period, usually at the end of the month or quarter. They are recorded in the general journal, which is a book of original entry. The adjusting journal entries are then posted to the general ledger, which is a book of final entry.
Adjusting journal entries are an important part of the accounting process. They ensure that the financial statements are accurate and reflect the true financial position of the company.
Do you have a trading or investing definition for our dictionary? Click the Create Definition link to add your own definition. You will earn 150 bonus reputation points for each definition that is accepted.
Is this definition wrong? Let us know by posting to the forum and we will correct it.