Adjusting Entries

What adjusting entries covers

Adjusting entries are made at the end of a period to bring accounts onto the accrual basis before the statements are prepared. They fall into a small number of recurring types: accrued revenues, accrued expenses, prepaid expenses, unearned revenue, and non-cash items such as depreciation and bad debt estimates. Every adjusting entry touches at least one income statement account and one balance sheet account.

These challenges give you the trial balance and supporting information, and ask for the adjustments and their effect on profit.

Where marks are usually lost

• Writing an adjusting entry that debits and credits two balance sheet accounts — it should always cross the statements.
• Adjusting for the whole amount rather than the portion that relates to the period.
• Including cash in an adjusting entry; cash movements are recorded when they happen, not at period end.