Nature and Description
Adjusting entries have characteristics that are different from the usual journal entries. They do not record a transaction but refer to a previous transaction already recorded, often with the balances of the accounts already computed and reflected in the unadjusted trial balance. They always involve a balance sheet (real) and an income statement (nominal) account, and never involve cash. Some adjusting entries are based on actual amounts earned or incurred, while others involve estimated amounts.
Lesson Objectives
At the end of this lesson, you shall be able to
- Apply the principles and concepts of adjusting entries
- Appreciate the significance of the accrual basis
- Explain the reasons for adjusting entries
- Identify the characteristics of adjusting entries and know their significance
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