5 Standard Adjusting Entries Examples in Accounting

Updated February 2, 2023

Bookkeepers and accountants help companies organize and record financial transactions to determine revenue and expenses. One task they complete is general ledger adjusting entries to fix any errors in the accounting books. Learning to recognize various adjusting entries can help you maintain accurate financial records. In this article, we discuss the definition of accounting adjusting entries, identify five adjusting entries examples, and answer several frequently asked questions about the process.

What are adjusting entries examples?

Adjusting entries examples can help you maintain accurate transactional records, as referring to examples provides context and guidelines for how an entry typically looks.This process is common for accountants and bookkeepers to help identify and fix mistakes found on a financial ledger. This is one step in the accounting cycle that helps an organization accurately reflect its finances.

For example, an accountant makes adjusting entries in the company's general ledger accounts, usually after preparing the trial balance. Using adjusting entries allows an accountant to balance the credits and debits and ensure that they properly categorize financial transactions. Each adjusting entry involves changing a revenue or expense account in addition to an asset or liability account.

5 adjusting entries examples

There are five standard adjusting entries examples that accountants and bookkeepers use to maintain the accuracy of an organization's financial records. They include accrued revenue, accrued expenses, deferred revenue, prepaid expenses, and depreciation expenses. To understand the procedure for completing each adjusting entry, review the examples below:

1. Accrued revenue adjusting entries

Accrued revenue is when a company earns income in one financial period but hasn't yet recorded the transaction or received the funds. You want to avoid understating your total accrued revenue and creating inaccurate financial statements. You can use an adjusting entry to maintain clarity by making required changes. For example, suppose the company you work for sells custom-made dog treats. In October, the company makes $2,000 worth of dog treats for a large retail customer, and you send out an invoice on October 20. The customer pays the invoice on November 15.

The company incurred expenses to make the dog treat, such as the cost of materials, the labour required to complete the treats, rent for the workspace, and utilities. You want to show the month's income accurately, so you create a journal entry to display the revenue generated from the dog treats order. For example, in October, your journal entries look like the following:

Date	Account	Debit	Credit
October 20	Accrued receivables	$2,000
October 20	Revenue		$2,000

When the company receives payment from the customer, you make an adjusting entry to show the movement from accrued receivables to cash:

Date	Account	Debit	Credit
November 15	Accrued receivables		$2,000
November 15	Revenue	$2,000

Related: Q&A: What Is Accounts Receivable and How Does It Work?

2. Accrued expenses adjusting entries

An accrued expense is when a company spends money or incurs a cost in one financial period but hasn't yet recorded the transaction or made the payment. For example, if your company pays their employees biweekly and two paydays of the month are in different accounting periods, you can gather accrued expenses. As a result, this can show inaccurate funds in the account ledger. You can complete an adjusting entry to correct the discrepancy by accounting for the wage expenses.

Using the same example from above, during October, the dog treat company hires a contract worker to help with the large order. They agree on an amount of $500 for the work, and the contractor doesn't send the invoice until November 5. In October, you want to record the money the company owes the contractor as an accrued expense as follows:

Date	Account	Debit	Credit
October 31	Accrued expenses		$500
October 31	Labour expenses	$500

Then, in November, when the contractor sends an invoice, and the company pays the bill, you make an adjusting entry to move the money from accrued expenses to cash, as a withdrawal from the company's bank account:

Date	Account	Debit	Credit
November 5	Accrued expenses	$500
November 5	Cash		$500

3. Deferred revenue adjusting entries

Deferred revenue is when a company receives money for something in advance of the goods or services. This can include a customer prepaying for a service or receiving a retainer fee. While you want to record the receipt of money into the accounting transactions, you adjust the books to show the revenue in the month when the company performs the services or provides the products.

For example, suppose a local pet show organizer contacts the dog treat company owner on October 10 and asks them to speak at an annual conference in December. The event planner offers to pay $1,000 in advance as a speaking fee. In the October general ledger, you record the speaking fee income as deferred revenue:

Date	Account	Debit	Credit
October 10	Cash	$1,000
October 10	Deferred revenue		$1,000

Once the owner completes the conference presentation in December, you can move the money from deferred revenue to another account with an adjusting entry:

Date	Account	Debit	Credit
December 20	Deferred revenue	$1,000
December 20	Consulting fees		$1,000

Related: Profitability vs. Revenue: Understanding the Difference

4. Prepaid expenses adjusting entries

A prepaid expense is when a company pays in advance for expected costs. This adjusting entry process is the opposite of deferred revenue, where you capture the complete payment in a prepaid expense general ledger account. Then, you adjust the entries to show when the payment applies to the expense. For example, suppose the dog treat company pays for an entire year's worth of rent in October, based on a monthly rent payment of $1,000. Here, your general ledger transactions are:

Date	Account	Debit	Credit
October 15	Prepaid rent expense	$12,000
October 15	Cash		$12,000

Every month, you can create an adjusting entry to move the money from the prepaid rent account into the rent expense account:

Date	Account	Debit	Credit
November 15	Rent expense	$1,000
November 15	Prepaid rent		$1,000

5. Depreciation expenses adjusting entries

A depreciation expense is the amount of loss a company pays as the value of an asset decreases. Typically, large items of considerable value, such as vehicles, heavy machinery, or manufacturing equipment, depreciate over time and with use. As the asset's value declines, you want to record the loss so that your financial statements remain accurate.

There are several ways to calculate depreciation, and the way you record the expense and adjusting entries depends on your method. At the end of every accounting period, the total depreciation amount changes on your balance sheet when the company has an asset that has depreciated. As a result, each time you pay depreciation, it shows an expense on your income statement.

Related: A Complete Guide to Fixed Assets (Including Examples)

FAQs about adjusting entries

Here are several frequently asked questions about the topic of adjusting entries:

Who uses adjusting entries?

Using adjusting entries is common throughout most industries and bookkeeping methods, as it provides a system to fix mistakes with complete visibility. Many companies hire or employ accountants or bookkeepers to complete the financial record-keeping for the company. Part of their responsibilities includes completing adjusting entries. If a company is new or has yet to hire someone for an accounting role, the business owner or administrator may complete these duties instead.

Related: How to Become a Chartered Accountant: Definition and Steps

What is the importance of adjusting entries?

It's vital that accounting records and financial statements are accurate for an organization. Using adjusting entries allows you to fix mistakes while adding notes to corrections. For example, if you accidentally record an incorrect payment date for an expense, you can use an adjusting entry to show the correct payment date.

Does the format of accounting change the adjusting entry method?

The method of your bookkeeping can affect how you process adjusting entries in your financial records. Most organizations either use spreadsheets to maintain their bookkeeping or use an accounting software program. If you use a spreadsheet, you want to include a column to add notes for any adjusting entries you make. This can help you later when reconciling your financial statements and preparing for your fiscal year-end.

If you use an accounting software program, creating adjusting entries is typically easier. This is because most programs automatically include a note line in any general ledger entry for recording important information about a transaction. Ensure that any adjustments you make have a note to explain why the entry is there, as this supports your accounting practices' financial visibility and integrity.

How often do you make adjusting entries?

Most accountants prefer to adjust entries at the end of every month or on the last day of the reporting period. They complete these transactions before publishing the final version of the monthly or periodic financial statements to ensure accurate revenues and expenses. In addition, it's common to complete another batch of adjusting entries upon the organization's fiscal year-end to prepare correct records before submitting income tax statements.

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