Glossary
Accounting Basics

Adjusting Entry

By: Alec Hollingsworth
Updated:  
June 16, 2025

DEFINITION:

An adjusting entry updates account balances at period end to ensure accurate financial statements.
An adjusting entry is a journal entry made at the end of an accounting period to update certain accounts before financial statements are prepared. These entries ensure that revenues and expenses are recorded in the correct period, reflecting the actual financial position of the organization. Adjusting entries are commonly used to account for accrued expenses, prepaid expenses, depreciation, and unearned revenue. By making these adjustments, organizations comply with the accrual basis of accounting, which recognizes transactions when they occur rather than when cash changes hands. This process helps maintain accurate and reliable financial records, which are essential for decision-making, compliance, and transparency.

Key Takeaways

  • Adjusting entries are made at period end.
  • They ensure revenues and expenses are recorded in the correct periods.
  • Common types include accruals, prepaids, and depreciation.
  • They are essential for accurate financial reporting.

Why It Matters

Ensures financial statements reflect true financial position and performance.

Real World Example

A nonprofit receives a $12,000 insurance invoice in January for coverage from January to December. At month-end, only $1,000 should be recorded as insurance expense for January. The rest is a prepaid expense. An adjusting entry is made to allocate $1,000 to insurance expense and $11,000 to prepaid insurance. This ensures the nonprofit’s January financial statement accurately reflects the true expense incurred for that month, helping the organization make better budgeting decisions and meet reporting requirements.

How Aplos Helps

In Aplos, adjusting entries can be created easily through the journal entry feature, ensuring your nonprofit’s financial reports are accurate and compliant with accounting standards. This helps organizations track accruals, prepaids, and other adjustments without manual calculations, making period-end closes more efficient.
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Frequently Asked Questions

What is an adjusting entry?

An adjusting entry is a journal entry made at the end of an accounting period to update account balances before preparing financial statements.

Why do nonprofits need adjusting entries?

Adjusting entries ensure that income and expenses are recognized in the correct period, providing an accurate financial picture for reporting and compliance.

Can Aplos help automate adjusting entries?

Yes, Aplos allows users to create and manage adjusting entries easily, streamlining the period-end closing process for nonprofits.

What are common types of adjusting entries?

Common types include accruals, prepaids, depreciation, and adjustments for unearned revenue.

When should adjusting entries be made?

Adjusting entries are typically made at the end of each accounting period, before financial statements are finalized.

Related Terms

Uniform Guidance
Reclassification Entry
Endowment Fund
Posting
Chart of Accounts
Garnishment

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