Accounting Adjustments - Explained
What are Accounting Adjustments?
Written by J. Mance Gordon
Updated at April 18th, 2024
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What are Accounting Adjustments?
An accounting adjustments are journal entries. More specifically, they are things entries that I can postpone doing the journal entry for (or maybe doing a whole bunch of journal entries for) until the very end of the year. Just do one giant journal entry at the very end.
Typically, when we do anything in accounting that deals with cash, we journalize it at that time. If we pay for something, we do a journal entry right then. Adjustments are a little different.
How Do Accounting Adjustments Work?
Adjustments are made at the end of the period. If you're dealing with a normal calendar year, they happen on December 31st. There may be things that happen monthly and instead of doing one adjustment each month, you just do one at the very end. This is possible only because cash hasn't been affected yet or you don't know about it until the very end.
The journal entry affects one or more income statement accounts and one or more balance sheet accounts. So, if you write down the letters "r-e-a-l" and then split that word right down the middle.
This acronym is a good representation of how adjustments work because one side of the equation (whether it be debit or credit doesn't matter) is going to be revenue or expense. The other side of the equation is going to be assets or liabilities.
Note: You won't have two assets in this. It'll be one is going to be revenue expenses, the other one is going to be assets or liability.
For different types of adjusting entries, there are four different things that generally give rise to accounting adjustments:
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