Dictionary / Adjusting Entry
What does Adjusting Entry mean in accounting?
Quick definition
Financial reportingJournal entry for the purpose of correcting a general ledger account or bringing it up to date. This term guides how bookkeepers record, classify, and explain related transactions in routine financial reporting.
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Examples
Prepaid coverage November already used
On November 1 your sign shop paid your insurer $1,419 for three months of shop liability and coded the check to Prepaid insurance. By the November 30 close, one month of that coverage is gone. The original check is not the adjusting entry; that only moved cash into prepaid. Post a journal dated November 30 in QuickBooks Online or Xero: debit Insurance expense $473, credit Prepaid insurance $473. November's P&L now shows that month's cost, and prepaid insurance on the balance sheet drops to $946.
A used bandsaw sitting in supplies
On January 14 your woodshop's debit card paid a machinery dealer $4,650 for a used bandsaw, and the bank feed coded it to Shop supplies. You already accepted the line and reconciled January checking. At the January 31 close you catch it: the saw will last years, so it belongs with Equipment, not one month's supplies. Do not unreconcile the bank line; post an adjusting entry debiting Equipment $4,650 and crediting Shop supplies $4,650. That journal corrects the general ledger accounts; it does not record a new purchase.
Why it matters
An adjusting entry is the journal entry you post when a general ledger account is stale or wrong: a used prepaid still sitting as an asset, wages or costs that crossed month-end, or a purchase in the wrong bucket. You will post these most month-ends if you have prepaids, fixed assets, or pay that spans the last day, and you will post a correction whenever you find a miscode. They belong at close, after bills and bank lines are in, before you lock the accounting period. Skip them and that month's P&L is missing used costs or earned work; treat a new vendor bill as one of these, or mix them up with closing entries that zero income accounts, and you either double-count a transaction or wipe the wrong balances.
Further reading
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What is Adjusting Entry in bookkeeping?
Journal entry for the purpose of correcting a general ledger account or bringing it up to date.
When should I use Adjusting Entry?
Use Adjusting Entry when the transaction facts match its definition and you need the ledger and financial statements to reflect the correct account and period.
What is a common mistake with Adjusting Entry?
Adjusting Entry is used for adjusting entry entries, while Abandonment covers a related but distinct bookkeeping purpose. Review both terms before posting unusual transactions. A common mistake is applying it by label only instead of checking the underlying transaction details.