Adjusting Entry Law and Legal Definition
Adjusting entries are bookkeeping entries usually made at the end of an accounting period to allocate and record previous unrecognized revenue and expenses. Changes with respect to the assets and liabilities are also added to the period in which they actually occurred. The basis of adjusting entry is the revenue recognition principle. Sometimes an accounting entry is also known as ‘balance day adjustments’.
An adjusting entry can be classified into two types: accruals and deferrals. Accrual refers to revenues or expenses that have accrued but have not yet been recorded. While deferrals refer to revenues or expenses that have been recorded but need to be deferred to a later date. Some of the examples of adjusting entries include accounts receivable, accounts payable, depreciation, and amortization.