Adjusting Journal Entry

Adjusting journal entry is the accounting entry which are used to compensate for the transactions that might no be posted in the general ledger and or since they span numerous accounting periods, or due to the transaction did not generate anything to post or record. Adjusting journal entries are included at the end of the fiscal period before closing the books of accounts. Managing adjusted journal entries could be quite difficult and at times they could need a judgment call with some people that would like to leave them to the accountant.

There are two kinds of adjusting journal entries such as accruals are income or expenses that occurred before the end of the fiscal period and deferrals are income or expenses that will occur after the fiscal period is over.  An example of the accrual is the interest that is earned on the bank account. In the accounting ledger, if the interest is not posted, a false picture of the firm’s economic health is created, making it essential to add the adjusting journal entry in order to show that the interest received or earned, although it has not yet be made or paid out.

Another example is the services that have been offered or rendered, however not yet paid.  It is essential to note that people rendered or performed X amount of services in a given time or month, although funds have not been obtained or received. Similarly, paychecks could be entered as an adjusting journal entry, showing that the firm would owe cash to the employees based on the amount of services or worked the have provided to the company, although the paychecks or salaries are not yet been given to them. Adjusting journal entries could be used to account for items such as interest paid and earned, paychecks, unearned revenue, prepaid expenses, and so on.

Questionnaire:

• What is Adjusting journal entry?
• Why Adjusting journal entry is necessary?