Practice adjusting entries for accruals, deferrals, prepaid expenses, unearned revenue, and depreciation. Free questions with detailed explanations for every scenario.
Start practising now — it's free Read study guidesAdjusting entries are made at the end of an accounting period to ensure revenues are recognised when earned and expenses when incurred — the foundation of accrual accounting. Without adjusting entries, financial statements would be incomplete and potentially misleading.
There are four main types: accrued revenues (earned but not yet received), accrued expenses (incurred but not yet paid), deferred revenues (cash received but not yet earned), and prepaid expenses (paid in advance but not yet used). Each type requires a specific journal entry and affects both an income statement account and a balance sheet account.
Adjusting entries also include depreciation — the systematic allocation of a long-lived asset's cost over its useful life. Errors in adjusting entries flow directly into financial statements, making this a heavily tested topic in every accounting course.
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