by Saleh S. Abu-keshek on 6:35 PM
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.
- Accrued revenue—The company has delivered a product or service to a customer but has not yet been paid.
- 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.
- Deferred revenue—The company received payment for a product or service that was not yet been completely delivered to the customer (aka, “unearned revenue”).
- 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:
- Depreciation expense
- Bad debt expense.
- Revaluations : Reconciling actual and recorded values of assets.
Examples:
- Making a lower-of-cost-or-market adjustment to inventory.
- Recording an asset impairment
- Recording changes in accounting principles.
- Corrections : Error corrections involve correction of errors previously made in the general ledger.