Adjusting entries
Financial Accounting glossary · The Accounting Cycle & Financial Statements
Definition
Period-end journal entries that update accounts to comply with the accrual basis.
Adjusting entries in plain English
Imagine you paid $1,200 upfront for a year of gym membership, but on any given month you've only really "used up" one month of it. Adjusting entries are the little bookkeeping corrections a company makes at the end of a period so the records show what actually happened during that time — not just when cash moved. This matters because of the accrual rule: you record revenue when it's earned and expenses when they're used up, even if the money changed hands earlier or hasn't yet. So at period-end you tweak accounts for things like interest that quietly built up, prepaid stuff you've now consumed, or work you did but haven't billed.
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