ADJUSTING ENTRY Meaning and
Definition
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An adjusting entry refers to a financial transaction made at the end of an accounting period to update the company's financial records and ensure that the financial statements reflect accurate and up-to-date information. It is a vital step in the accounting cycle to correct any discrepancies or errors that might exist within the recorded transactions.
Adjusting entries are typically made in accordance with the accrual basis of accounting, which recognizes the revenue when earned and expenses when incurred, regardless of when the cash is received or paid. These entries may involve the recognition of unearned revenues, prepaid expenses, accrued revenues, or accrued expenses, among others.
Unearned revenue adjusting entries address situations where a customer has paid in advance for goods or services that have not been delivered yet. Such entries convert the unearned revenue into earned revenue as the goods or services are provided.
Prepaid expense adjusting entries account for items that have been paid for in advance but have not yet been consumed. These adjustments transfer the prepaid expense from the balance sheet to the income statement as an expense, recognizing the portion that has been used.
Accrued revenue and accrued expense adjusting entries deal with revenue or expenses that have been recognized but not yet recorded or paid. These entries ensure that the financial statements accurately reflect the company's current obligations and receivables.
In summary, adjusting entries play a crucial role in matching revenues and expenses and maintaining the accuracy and completeness of a company's financial records at the end of an accounting period. They ensure that the company's financial statements provide a true and fair view of its financial position.
Common Misspellings for ADJUSTING ENTRY
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- adjysting entry
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- adjisting entry
Etymology of ADJUSTING ENTRY
The word "adjusting entry" consists of two parts: "adjust" and "entry".
The term "adjust" derives from the Late Latin word "adiustare", which means "to correct" or "to bring into alignment". It further traces back to the Latin word "adiustus", which means "to settle" or "to arrange". The word "adjust" entered the English language in the late 17th century.
The word "entry" comes from the Old French word "entree", which means "entry" or "entrance". It also has roots in the Latin word "intrare", which means "to enter". The term "entry" has been used in the accounting sense since the early 15th century.
Therefore, the phrase "adjusting entry" combines the concept of correcting or aligning with the idea of making an entry or recording in the context of accounting.
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