Homework Help With Adjusting Entry
In the subject of accountancy,adjusting entries can be defined as the journal entries.These adjusting entries usually get made by an accountant at the end of the accounting period to allocate revenue and expenses to the time in which they occurred.The basis an accountant uses to make adjusting entries is the revenue recognition principle of the accounting.There are four types of adjusting entries.
- Prepayments: When a company receives the cash payment before the delivery of the product or service, so this entry does not get made in the account till the product gets delivered. After the delivery of the product,this cash comes in the prepaid expense asset account.Then a company makes an adjusting entry to recognize the revenue is used as necessary.
- Accruals: These are the revenues that are recognized by the company. It is like a product or service has been delivered, but the organization has not received any cash. As and when the income gets recognized it gets recorded as a receivable.
- Estimates: Then comes the estimates,it comes in the use when a company cannot estimate the expense of something.
- Inventory: This is used to determine the cost of goods sold expense.This adjusting entry is not necessary for a company using perpetual inventory.
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