Adjusting Entries Explained

Revenues and expenses recognized after cash is exchanged.

To match the expense of using an asset with the revenue it generates.

To ensure that the financial statements reflect the true financial position of the company.

Revenues earned but not yet received.

Depreciation is the systematic allocation of the cost of a tangible asset over its useful life.

Journal entries made to update account balances at the end of an accounting period.

Allocation of an asset's cost over its useful life.

Deferrals are postponing the recognition of revenues and expenses.

Cash received before services are performed.

Adjusting entries are journal entries made at the end of an accounting period to allocate income and expenses to the correct period.

Accruals are recognizing revenues and expenses that have occurred but are not yet recorded.

Cash paid for expenses not yet incurred.

A method that allocates equal expense over the asset's life, calculated as (Cost of Asset - Salvage Value) / Useful Life.

A method based on actual usage of the asset, calculated as (Cost of Asset - Salvage Value) / Total Estimated Production × Actual Production.

They are crucial for presenting an accurate financial picture and ensuring compliance with accounting principles.

Expenses incurred but not yet paid.

An accelerated depreciation method that results in higher expenses in early years, calculated as Book Value at Beginning of Year × Depreciation Rate.

They help stakeholders in making informed decisions.

A method of depreciation that allocates equal expense over the asset's life.

A depreciation method based on actual usage of the asset.

An accelerated depreciation method that results in higher expenses in early years.