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Adjusting Journal Entries

An explanation of adjusting entries in accounting. A screencast made with Jing.

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Adjusting Journal Entries in Accounting

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The Script:

  • Hello and welcome!
  • Today I will try to explain what adjusting entries are in accounting.
  • Adjustring entries are journal entries made at the end of an accounting period of a Company.
  • When account balances are incorrect, an adjusting journal entry is prepared to adjust account balances.
  • Incorrect account balances may happen if:
  • The Company or the Accountant has made errors in preparing journal entries.
  • Or.
  • The accounting records are not timely updated to reflect new transactions or changes in amount occuring in previously entered transactions.
  • These adjusting journal entries are usually prepared at the end of an accounting period to correct balances refelected in the Balance sheet.
  • An example illustrates when and how a journal entry is made.
  • Suppose, a Company has sold its product for cash at $2000 but the transaction was recorded in the accounting journal as $200, the Company also paid $20 in cash as courier expense which were not recorded.
  • The original journal entry that was made would be:
  • Cash $200
  • Sales Income $200
  • Now, at the end of a Company's accounting period it is identified that the correct amount should have been $2000 instead of $200, as well as, the postage expense of $20 was also not recorded, therefore an adjustment entry is made accordingly by:
  • Analyzing the difference between the correct and incorrectly entered amount, in our example that would be $1800 from the sale, and $1780 for Cash received, $20 for the postage expense. Hence, an adjusting entries would be:
  • Cash $1800
  • Sales Income $1800
  • Postage Expense $20
  • Cash $20
  • We can use T-accounts to find the correct ending balances for each account.
  • The correct ending balances will be:
  • Cash $1980
  • Sales Income $2000
  • Postage Expense $20
  • I hope this explains what adjusting entries are and how they are used.
  • Thanks for watching.

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