what is an adjusting journal entry 
an adjusting journal entry is an entry in a company s general ledger that occurs at the end of an accounting period to record any unrecognized income or expenses for the period when a transaction is started in one accounting period and ended 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 understanding adjusting journal entriesthe purpose of adjusting entries is to convert cash transactions into the accrual accounting method accrual accounting is based on the revenue recognition principle that seeks to recognize revenue in the period in which it was earned rather than the period in which cash is received as an example assume a construction company begins construction in one period but does not invoice the customer until the work is complete in six months the construction company will need to do an adjusting journal entry at the end of each of the months to recognize revenue for 1 6 of the amount that will be invoiced at the six month point an adjusting journal entry involves an income statement account revenue or expense along with a balance sheet account asset or liability it typically relates to the balance sheet accounts for accumulated depreciation allowance for doubtful accounts accrued expenses accrued income prepaid expenses deferred revenue and unearned revenue income statement accounts that may need to be adjusted include interest expense insurance expense depreciation expense and revenue the entries are made in accordance with the matching principle to match expenses to the related revenue in the same accounting period the adjustments made in journal entries are carried over to the general ledger that flows through to the financial statements types of adjusting journal entriesin summary adjusting journal entries are most commonly accruals deferrals and estimates accruals are revenues and expenses that have not been received or paid respectively and have not yet been recorded through a standard accounting transaction for instance an accrued expense may be rent that is paid at the end of the month even though a firm is able to occupy the space at the beginning of the month that has not yet been paid deferrals refer to revenues and expenses that have been received or paid in advance respectively and have been recorded but have not yet been earned or used unearned revenue for instance accounts for money received for goods not yet delivered estimates are adjusting entries that record non cash items such as depreciation expense allowance for doubtful accounts or the inventory obsolescence reserve not all journal entries recorded at the end of an accounting period are adjusting entries for example an entry to record a purchase of equipment on the last day of an accounting period is not an adjusting entry 