What are Accounting Adjusting Entries

Accounting Adjusting Entries are made at the end of Accounting Period in order to Adjust the balance of Accrual And Deferrals. It is the requirement of Accrual Basis of Accounting and Generally Accepted Accounting Principle Matching Concept that all the Expenses incurred in earning Revenues of the same period must be sett off against the Revenues in order to provide true and fair presentation of Financial Statement to Users of the Financial Statements.

For Example, if we Accrued Salaries of employees for the month, then we need to pass adjusting entry to reflect the true picture of our Net Income / Net Profit for the period i.e., all the sales made by Sales Manager must be sett off against his Salary that is expense for the company. Let’ say that Mr. A is a Sales Manager and the company pays him Rs. 100000 for the month. For the month of October, 2018, his salary is due and payable by the company on 10^th November, 2018, then, there is need of Adjustment for salary with the sales made by Mr. A for the company’s business. So, following Adjusting Entry is passed in the Book of business as shown below:

                                         Salary Expense a/c 100000

                                                                        Outstanding Salary a/c 100000                               

  

                                   (Salary Accrued for the Month of October, 2018)

On 10^th November, 2018, the company will reverse the above entry through Reversing Entry and passed the Journal Entry For Salary as shown below:

                                              Salary Expense a/c   100000

                                                                            Cash a/c      100000

(Salary Paid To Mr. A For Cash)