Adjusting & Closing Entries — Core Concepts
Seven topics covering all four adjusting entry types, the four closing entries, and the post-closing trial balance. Click any card to expand.
Accounting runs on the accrual basis — revenue is recognised when earned, expenses when incurred, regardless of when cash moves. At the end of every period, the books contain transactions that have not yet been recorded because no cash changed hands. Adjusting entries fix that before financial statements are prepared.
The Four Categories of Adjusting Entries
Accrued Revenues
Earned; not yet billed or received
Accrued Expenses
Incurred; not yet paid or recorded
Unearned Revenue
Cash received; not yet fully earned
Prepaid Expenses
Paid in advance; not yet fully used
Two additional adjustments always appear at period-end: depreciation (allocating the cost of a long-lived asset) and supplies used (converting supplies asset to expense).
Key rule: every adjusting entry touches at least one balance-sheet account and one income-statement account.
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