1. Adjusting entries
Prepared at the end of the period before income statement and balance sheet are prepared

2. Types of Adjusting Entries
Accruals
Deferrals
Accrued Expenses – adjust for expenses incurred (no cash out or bills received by end of period)
Accrued Revenues –adjust for revenue earned (no cash in or bills sent by end of period)
Deferred revenue – adjust for revenue earned (cash in before revenue earned, defer revenue until “earning the unearned.”
Deferred expense – adjust for expenses incurred (purchase "asset”, defer expense until assets used up).

3. Characteristics of adjusting entries
Impact on the income statement
Impact on the balance sheet
Revenues are increased by accrued revenue & earning the unearned
Expenses are increased by accrued expenses and assets used up
Assets are increased by accrued revenue and decreased by assets used up
Liabilities are increased by accrued expenses and decreased by earning the unearned.
Characteristics of adjusting entries

4. More characteristics of adjusting entries!
No impact on the Cash Flow statement!
cash entries are normally done during the month as part of daily entries and do not affect the 4 categories of adjusting entries
Sometimes the bank statement is reconciled at the end of the month and the entries are done as part of the adjusting entries – if so, then there are cash increases and decreases for these entries only.
More characteristics of adjusting entries!