Adjusting entries are important changes you make to accounting records before creating financial statements.
Think of them as a way to tidy up the books so that everything shows the true situation accurately.
Usually, you do these adjustments at the end of a period, like a month or a year. They help to account for:
Now, let’s talk about how these entries connect to the matching principle.
The matching principle is all about pairing up income with the expenses that helped create that income within the same time frame.
Why is this important? It helps give a clearer picture of how much money a company is really making.
Here's how each type of adjusting entry helps:
Accrued Revenues: This is money you’ve made but haven’t recorded yet. For example, if you do a job in December but send the bill in January, you need to adjust the records to show that you earned the money in December. This way, it matches up with any costs related to that work.
Accrued Expenses: Like accrued revenues, these are costs you’ve incurred but haven’t paid or recorded. For instance, if you owe workers for the last week of December but pay them in January, you adjust the records to show those expenses in December. This keeps everything in sync.
Deferred Revenues: If you get paid for services you haven’t done yet, adjusting entries help show that money in the right time frame, when you actually provide the services.
Deferred Expenses: Think about insurance you pay ahead of time. You can adjust the records to spread that cost over the months when you actually get the benefits.
In summary, adjusting entries help keep financial statements accurate and show how the business is really doing. They make sure income and expenses are recorded in the right places, making it easier to see if the business is truly making a profit or not.
Adjusting entries are important changes you make to accounting records before creating financial statements.
Think of them as a way to tidy up the books so that everything shows the true situation accurately.
Usually, you do these adjustments at the end of a period, like a month or a year. They help to account for:
Now, let’s talk about how these entries connect to the matching principle.
The matching principle is all about pairing up income with the expenses that helped create that income within the same time frame.
Why is this important? It helps give a clearer picture of how much money a company is really making.
Here's how each type of adjusting entry helps:
Accrued Revenues: This is money you’ve made but haven’t recorded yet. For example, if you do a job in December but send the bill in January, you need to adjust the records to show that you earned the money in December. This way, it matches up with any costs related to that work.
Accrued Expenses: Like accrued revenues, these are costs you’ve incurred but haven’t paid or recorded. For instance, if you owe workers for the last week of December but pay them in January, you adjust the records to show those expenses in December. This keeps everything in sync.
Deferred Revenues: If you get paid for services you haven’t done yet, adjusting entries help show that money in the right time frame, when you actually provide the services.
Deferred Expenses: Think about insurance you pay ahead of time. You can adjust the records to spread that cost over the months when you actually get the benefits.
In summary, adjusting entries help keep financial statements accurate and show how the business is really doing. They make sure income and expenses are recorded in the right places, making it easier to see if the business is truly making a profit or not.