Adjusting Journal Entry

AAA

DEFINITION of 'Adjusting Journal Entry'

An entry in financial reporting that occurs at the end of a reporting period to record any unrecognized income or expenses for the period. When a transaction is started in one accounting period and finished in a later period, an adjusting journal entry is required to properly account for the transaction.

Adjusting journal entries can also refer to financial reporting that corrects a mistake made previously in the accounting period.


Also known as a "balance day adjustment."




INVESTOPEDIA EXPLAINS 'Adjusting Journal Entry'

An adjusting journal entry involves an income statement account (revenue or expense) along with a balance sheet account (asset or liability) and typically relates to the accounts for accrued expenses, accrued revenue, prepaid expenses and unearned revenue.
When used to correct a previous accounting mistake, an adjusting journal entry usually involves a credit to one account and a debit to another account.




RELATED TERMS
  1. Contra Account

    An account found in an account ledger that is used to reduce ...
  2. Financial Statements

    Records that outline the financial activities of a business, ...
  3. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  4. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  5. General Ledger

    A company's main accounting records. A general ledger is a complete ...
  6. Certified Public Accountant - CPA

    A designation given by the American Institute of Certified Public ...
RELATED FAQS
  1. What is the difference between technical analysis and fundamental analysis?

    Fundamental analysis and technical analysis are distinct methods used to research and evaluate securities. Fundamental analysis ... Read Full Answer >>
  2. How is reconciliation treated under generally accepted accounting principles (GAAP)?

    The generally accepted accounting principles, or GAAP, provide different reconciliation rules for balancing many kinds of ... Read Full Answer >>
  3. Where did the concept of reconciliation in accounting come from?

    Financial accountants perform reconciliation to ensure that the balances of two accounts are in agreement. The process by ... Read Full Answer >>
  4. Are all fixed costs considered sunk costs?

    In accounting, finance and economics, all sunk costs are fixed costs. However, not all fixed costs are considered to be sunk. ... Read Full Answer >>
  5. What is the difference between work in progress (WIP) and raw materials in accounting?

    Raw materials and works in progress (WIP) are distinct categories in financial accounting for business inventory. Each applies ... Read Full Answer >>
  6. How is accounting in the United States different from international accounting?

    Despite major efforts by the Financial Accounting Standards Board, or FASB, and the International Accounting Standards Board, ... Read Full Answer >>
Related Articles
  1. Insurance

    Ancient Accounting Systems

    Learn how accounting evolved to keep records of increasingly complex transactions and civilizations.
  2. Professionals

    Finding The Right Accounting Certification

    An accounting certification may be the boost your career needs. Find out how to get the most bang for your buck.
  3. Fundamental Analysis

    Spotting Creative Accounting On The Balance Sheet

    Companies have ways of manipulating their balance sheets that investors should be aware of.
  4. Active Trading

    Creative Accounting: When It's Too Good To Be True

    Accounting practices have matured, but there are still plenty of ways that companies can disguise their financial results.
  5. Options & Futures

    Core Earnings Strip Away "Creative" Accounting

    This metric is an attempt to counteract creative accounting, but it poses its own set of challenges.
  6. Forex Education

    Accounting Basics

    What is accounting? Learn the basics of this essential way of recording and summarizing financial information.
  7. Investing

    The Ins and Outs Of In-Process R&D Expenses

    Are these charge-offs fair accounting or earnings manipulation? Learn more here.
  8. Economics

    Understanding Carrying Value

    Carrying value is the value of an asset as listed on a company’s balance sheet. Carrying value is the same as book value.
  9. Economics

    International Financial Reporting Standards (IFRS)

    International Financial Reporting Standards are accounting rules and guidelines governing the reporting of different types of accounting transactions.
  10. Economics

    Explaining Property, Plant and Equipment

    Property, plant and equipment are company assets that are vital to business operations, but not easily liquidated.

You May Also Like

Hot Definitions
  1. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  2. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  3. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  4. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  6. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
Trading Center