Adjusting Entries: Types, Examples, and How to Record Them

Key Takeaways

Every bookkeeper has seen it. The bank feed is reconciled, every transaction is categorized, and the P&L still looks wrong. Rent was paid in October for the whole quarter. A client was billed in January for work done in December. A truck lost value all year and nothing on the books says so.

None of those are errors in the transactions. They are timing gaps, and adjusting entries are how you close them. Below you will find the five types, one worked example with real numbers, and the places these entries go missing when a firm is closing dozens of files.

What Are Adjusting Entries?

Adjusting entries are journal entries posted at the end of an accounting period to record revenue and expenses in the period they belong to. They update account balances that are out of date because cash and activity did not happen on the same day.

Each adjusting entry touches at least one income statement account (revenue or expense) and at least one balance sheet account (an asset or a liability). It never touches cash. If an entry hits the bank account, it is a regular transaction, not an adjustment.

If you want a refresher on the mechanics of debits and credits first, our guide on how to write a journal entry covers the format.

Why Do Adjusting Entries Exist?

They exist because of the matching principle under accrual accounting. Revenue belongs in the period it is earned. Expenses belong in the period they helped produce that revenue. Day-to-day bookkeeping follows invoices, bills and bank activity, so it rarely lines up with that on its own.

Without adjustments, a month with a large annual insurance payment looks unprofitable, and the eleven months after it look better than they are. Lenders, owners and tax preparers end up working from numbers that move with payment dates instead of performance.

Who Posts and Reviews Them at a Firm?

In most firms the bookkeeper or senior bookkeeper prepares adjusting entries. A reviewer or the firm owner approves them before the close is signed off. The preparer knows the client's activity. The reviewer checks that the recurring items were not forgotten and that the amounts are supportable.

A short reviewer checklist keeps this consistent from one client file to the next:

When Are Adjusting Entries Posted?

They are posted at the end of each accounting period, after the unadjusted trial balance is run and before financial statements are prepared. For firms that close monthly, that means every month. For a client who only needs year-end statements, the same entries are posted once. That usually means a long list at the busiest time of year.

Monthly adjustments are easier to support because the facts are fresh. If you are building a routine around this, the month-end close guide and the year-end accounting checklist show where adjustments sit in the full sequence.

What Are the Types of Adjusting Entries?

There are two groups. Accruals record activity that happened before any cash or invoice. Deferrals spread cash that was received or paid earlier across the periods it covers. Estimates, such as depreciation, are usually treated as a third category.

Two of these have their own guides: prepaid expenses accounting and deferred revenue. The accrual side is covered in the month-end closing entries guide.

Adjusting entries for depreciation

Depreciation is the adjusting entry people forget, because nothing arrives in the inbox to prompt it. There is no bill and no bank transaction. The entry debits Depreciation Expense and credits Accumulated Depreciation, a contra asset that reduces the asset's book value without touching its original cost. The full method is in our journal entry for depreciation guide.

How Do You Record Adjusting Entries?

The process is the same for every type:

Worked example: a landscaping client at December 31

The firm is closing the year for a landscaping company. The unadjusted books show net income of $58,400. Five adjustments are needed.

Revenue rises by $9,350 ($7,250 plus $2,100). Expenses rise by $13,210 ($4,860, $1,350 and $7,000). Net income falls by $3,860. A client reading the unadjusted P&L would have been told the year was $3,860 better than it was.

Posting adjusting entries to the general ledger

Once journalized, each entry is posted to the general ledger so the account balances reflect it. In QuickBooks Online and Xero this happens when you save the journal entry. What matters at review is that every line landed in the intended account and the debits equal the credits.

Why adjusting entries are journalized

Journalizing creates a dated, documented record of what changed and why. That audit trail is what lets a reviewer, an auditor, or the next bookkeeper understand an adjustment months later, so the memo should state the basis and not just the amount.

Adjusting vs Closing, Reversing, and Correcting Entries

These four get mixed up often, and the timing is what separates them.

Adjusting entries are about timing. Correcting entries are about mistakes. For the closing side, see closing entries and closing entries examples.

From Unadjusted to Adjusted Trial Balance

The trial balance is where adjustments become visible. You start with the unadjusted trial balance, post the adjusting entries, and arrive at the adjusted trial balance. The adjusted version is the one the financial statements are built from.

The check at this step is straightforward: total debits must still equal total credits, and every account that moved should have a matching entry you can point to.

Adjusting Entries in QuickBooks Online and Xero

Both platforms handle adjusting entries as manual journal entries. You choose the accounts, enter debits and credits, date the entry on the last day of the period, and add a memo. For accruals that need to reverse, check whether your version offers an auto-reverse option, and confirm the exact steps in the platform's help documentation because menus change between releases.

The software records what you enter and nothing more. That gap is where a review process earns its keep.

Where Adjusting Entries Go Wrong

Most of these share a cause. The entry is easy, but nothing forces anyone to check whether it was needed. On a single file that is manageable. Across 50 clients, it depends on someone remembering.

Case Study: All In One Accounting

This case study is not specifically about adjusting entries, but it shows the review problem behind them. All In One Accounting is an outsourced accounting firm that also offers fractional controller and CFO services. They needed a review process that kept pace with growth and produced consistent financials for every client each month. They use Xenett to scan the P&L and balance sheet for errors, inconsistencies and missing entries before close, and to track close work in one dashboard. Read the All In One Accounting case study.

How Xenett Can Help

This is routine work, so the value of a system is in catching what was missed. Xenett's AI Accruals identifies prepaid, payroll and deferred revenue items that may need an adjustment, and the AI Financial Review scans every account against 50+ review points, native to QuickBooks Online and Xero. The entries checklist keeps an audit trail of what was posted and by whom.

Accounting judgment stays with the professional. The goal is that nothing is missed before the numbers reach the client, with firms reporting 70% less review time per file.

Conclusion

The entries are not complicated, but they are easy to skip. Know the five types, calculate each from a source, post them on the last day of the period, and review the adjusted trial balance before statements go out. Do that every month and year-end stops being a scramble.

If you want a review layer on top of your close, start your 14-day free trial (no credit card, setup in under 10 minutes) or book a 15-minute demo.

FAQ: Adjusting Entries

What are adjusting entries?

Adjusting entries are journal entries posted at the end of an accounting period to record revenue and expenses in the period they belong to. They update accounts for items such as accrued wages, prepaid expenses, deferred revenue and depreciation, and they never involve the cash account.

What are the types of adjusting entries?

There are five common types: accrued revenue, accrued expenses, prepaid expenses, deferred revenue, and depreciation. The first two are accruals, the middle two are deferrals, and depreciation is an estimate of how much of an asset's value was used.

Why are adjusting entries necessary?

They are necessary so financial statements follow the matching principle. Without them, income and expenses reflect payment dates instead of when the activity happened, which makes monthly and annual results unreliable.

What is the difference between adjusting entries and closing entries?

Adjusting entries update accounts before the financial statements are prepared. Closing entries come after, moving the balances of temporary accounts such as revenue and expenses into retained earnings so the next period starts at zero.

What is the difference between adjusting entries and correcting entries?

Adjusting entries handle timing and are a planned part of every close. Correcting entries fix a mistake in an earlier entry, such as a wrong account or amount, and are posted whenever the error is found.

Which trial balance is prepared after adjusting entries are posted?

The adjusted trial balance. It is prepared after adjusting entries are posted to the ledger, and it is the version used to build the income statement and balance sheet.

How do you record an adjusting entry in QuickBooks Online?

You record it as a manual journal entry dated the last day of the period, with debits and credits to the correct accounts and a memo explaining the basis. Menu locations vary by version, so confirm the steps in QuickBooks help.