Post adjusting entries

There are five types of adjusting entries:

• Accruals :An accrual involves an event that has occurred for which the related cash flow has not yet taken place.
  1. Accrued revenue—The company has delivered a product or service to a customer  but has not yet been paid.
  2. Accrued expense—The company has used up a good or service but not yet paid for it.

• Deferrals: A deferral involves a situation where the cash flow takes place before the related revenue is earned or the expense is incurred.
  1. Deferred revenue—The company received payment for a product or service  that was not yet been completely delivered to the customer (aka, “unearned revenue”).
  2. Deferred expense—The company paid for a good or service which they had not yet completely used up (aka, “prepaid expense”).

• Estimates : Estimates are used to recognize expenses that cannot be directly  attributed to a related revenue and must be allocated in a more subjective or systematic manner.
  Examples:
  1. Depreciation expense
  2. Bad debt expense.

• Revaluations : Reconciling actual and recorded values of assets.
  Examples:
  
  1. Making a lower-of-cost-or-market adjustment to inventory.
  2. Recording an asset impairment
  3. Recording changes in accounting principles.

• Corrections : Error corrections involve correction of errors previously  made in the general ledger.