ADJUSTING ENTRIES Meaning and
Definition
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Adjusting entries are journal entries made at the end of an accounting period to update certain accounts and ensure accurate financial information is reflected in the company's financial statements. These entries are necessary to account for transactions or events that have occurred but have not yet been recorded, and to correct errors or omissions that may have been made in the regular recording of transactions throughout the accounting period.
Adjusting entries typically involve the recognition of revenue or expenses that have been earned or incurred, but not yet recorded. For example, a company may need to record an adjusting entry to recognize revenue that has been earned but not yet billed to customers, or to account for expenses that have been incurred but not yet paid or recorded.
Another common purpose of adjusting entries is to allocate or apportion expenses or revenues accurately between different accounting periods. For instance, if a company pays annual insurance premiums, an adjusting entry may be necessary to recognize a portion of the expense in each month or quarter of the year, rather than all at once when the payment is made.
Adjusting entries are crucial for ensuring that the financial statements reflect the true financial position and performance of a company. By making these adjustments, financial statements provide a more accurate representation of revenues, expenses, assets, liabilities, and equity, which helps stakeholders make informed decisions about the company's financial health and prospects.
Etymology of ADJUSTING ENTRIES
The word "adjusting entries" does not have a specific etymology since it is a phrase composed of two separate words with their own origins.
The word "adjust" comes from the Latin word "adiustare", which means "to make right". It entered the English language in the mid-17th century.
The word "entries" is derived from the Old French word "entree", meaning "entrance" or "admission". It gradually evolved in the English language to refer to written records or accounts of financial transactions, which is the context in which it is used in "adjusting entries".
Therefore, "adjusting entries" refers to the act of making corrections or modifications to financial records or accounts to ensure accurate and up-to-date information.
