Journal Entry Adjustments
When it comes to journal entries in the accounting sphere, there are four adjustments. They have accrued income, accrued expense, deferred income, and deferred expense. Firstly, accrued income denotes that individuals and businesses “make a sale and collect payment at a later date” (Keythman, 2019, para. 2). Secondly, the accrued expense is the opposite situation to the previous example. This adjustment denotes that some expenses are incurred but not paid. Thirdly, the deferred income adjustment means that a person or legal entity collects income for services or products to be provided. Fourthly, deferred expense occurs in those situations when financial resources are paid while expenses are not incurred. A monthly rent that is paid at the beginning of every month is a suitable example of the deferred expense adjustment. In conclusion, one should admit that the four adjustments have a shared feature because they imply that a single transaction, either income or expense, lasts for two payment periods.
Simultaneously, it is reasonable to comment on the significance of these adjustments. They should be made to update the accounts at the end of every financial period. This step is essential to ensure that all incomes and expenses are correctly recorded, which is necessary to see the accounts’ actual values. That is why some issues can arise if these adjustments are ignored. It refers to the fact that the failure to keep income and expense accounts updated results in the fact that businesses cannot create adequate financial statements. In turn, this scenario leads to the fact that the business’s income and expenses will not agree, implying financial problems. This information denotes that businesses should involve sufficient efforts to make their journal entry adjustments timely.
Keythman, B. (2019). Four types of adjusting journal entries. Chron. Web.