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Wize University Introduction to Financial Accounting Textbook > The Year Ended Process

Adjusting Journal Entries

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How to Write an Adjusting Journal Entry

The purpose of writing adjusting journal entries is to ensure that the company's financial records respect the matching principle, meaning that all revenues earned and expenses incurred during the period have been recorded. Writing an adjusting journal entry requires you to identify which accounts are not up to date and by how much.


Watch Out!
The Cash account is never used while preparing adjusting journal entries.


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Questions to ask yourself
  • Am I adjusting a revenue or an expense?
  • What the revenue or expense paid in the past or will it be paid in the future.





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Example: Adjusting Journal Entries

On July 1st, 2019 ABC Inc paid $1,200 for an insurance policy for 12 months of coverage beginning on that date.

  1. Prepare the journal entry and T-accounts to record the transaction on July 1st, 2019
  2. Today is December 31st, 2019, the end of the company's fiscal year, prepare the adjusting journal entry and T-accounts to bring all accounts up to date.

Practice: Adjusting Journal Entries

Today is December 31st, 2020. The inventory count of Wize Inc.'s supplies on hand indicates that the company currently has $2,000 of supplies inventory. The unadjusted balance indicates that supplies on hand are $5,000. Prepare the adjusting journal entry to bring the account up to date.
Transactions:
AccountDebitCredit
Extra Practice
Journal Entries and Financial Statements
You were hired as an accountant for Turner and Hooch Inc. (hereafter, T&H) in December 2023. T&H sells high-end fruit blenders to small retail health stores across Canada. T&H is a public corporation listed on the Toronto Stock Exchange (TSX). It had 75,000 common shares outstanding on January 1, 2023. T&H’s fiscal year ends on December 31, 2023 and its tax rate is 25%. T&H’s previous accountant, who left the company on November 30, 2023, did not consistently record adjusting entries in a timely manner. T&H’s unadjusted trial balance on November 30, 2023 is shown below:
A review of T&H’s documents reveals the following items:
T&H paid $72,000 to the local newspaper on October 16, 2023. The newspaper agreed to run a single advertisement on the 3rd day of each month. The newspaper charges T&H $6,000 per advertisement.