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Adjusting Entry: Definition and Meaning
Definition
An adjusting entry is a journal entry made at the end of an accounting period to record items such as accrued expenses, prepaid expenses, depreciation, or earned revenue.
Why It Matters
Adjusting entries help align financial records with the activity that occurred during the reporting period. They are an important part of preparing accurate accrual-basis financial statements and closing the books on a timely basis.
A consistent month-end close process can help ensure that adjusting entries are supported, reviewed, and recorded in the appropriate period.
Example
A business pays an annual insurance premium in advance. At month-end, it records an adjusting entry to recognize one month of insurance expense and reduce the prepaid-expense balance.
Related Terms
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