What is an adjusting entry?

An adjusting entry is a journal entry made at the end of an accounting period to record revenues and expenses that have occurred but are not yet reflected in the books. These entries ensure financial statements accurately match revenues with expenses in the correct period. Common types include accrued expenses, prepaid expense amortization, depreciation, and accrued revenue.

The four types of adjusting entries

Accrued expenses: costs incurred but not yet billed. Accrued revenues: income earned but not yet invoiced. Prepaid expenses: costs paid in advance allocated across periods. Depreciation: asset costs are spread over useful life. Each type corrects a timing mismatch between cash movement and economic reality.

Common entries most firms miss

Accrued payroll for work performed but not yet paid. Prepaid insurance amortization. Unbilled work in progress at month-end. Accrued professional fees from a CPA or an attorney. Each omission distorts your financials. Build a standard list and review it every close cycle.