🔑Adjusting journal entries are necessary to accurately record transactions that are difficult to trace or require adjustments due to the passage of time or change in circumstances.
💡There are two types of adjusting journal entries: accruals and deferrals. Accrual entries account for events that have occurred but have not been accounted for, while deferral entries record expenses or revenues after the exchange of cash has already occurred.
📝Accrual entries recognize revenue before cash is received or expenses before cash is paid, ensuring completeness and accuracy in financial records.
💰Deferral entries recognize revenue after cash is received or expenses after cash is paid, ensuring matching of expenses and revenues in the same accounting period.
⏰Adjusting journal entries are typically made at the end of an accounting period after the preparation of the unadjusted trial balance.