Period-end journal entry used to align revenues, expenses, assets, and liabilities with the correct reporting period.
An adjusting entry is a period-end journal entry made to bring account balances into line with accrual accounting and the correct reporting period. Common adjustments involve accrued expenses, accrued revenue, prepaid items, depreciation, and other timing-related balances.
Without adjusting entries, a business can report revenue too early, expenses too late, liabilities too low, or assets too high. Adjustments are what turn raw transaction posting into period-based financial reporting.
Adjusting entries are usually prepared after routine transactions are posted but before financial statements are finalized. They often affect one income-statement account and one balance-sheet account because the goal is to match timing across periods.
Adjustments do not exist to fix arithmetic only. They exist to fix period recognition and measurement.
Employees earn $4,000 of wages in December that will be paid in January:
| Account | Debit | Credit |
|---|---|---|
| Wage Expense | 4,000 | |
| Wages Payable | 4,000 |
That entry records the December cost in December even though the cash payment happens later.
An adjusting entry is not the same as an error correction entry. Many adjustments are valid period-end recognition steps even when no mistake occurred in the underlying transaction processing.