Q.What are adjusting entries ?
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Start your 14-day free trial to unlock the full solution →Adjusting entries are year-end journal entries that record items belonging to the current period but not yet entered in the books, so that the final accounts reflect the true profit and true financial position (accrual/matching basis). Every adjustment has a double effect.
Meaning. At the end of the accounting year some transactions relating to that year are still unrecorded, or some recorded amounts relate partly to the next year. To follow the matching concept (Class-11 Accountancy, Tamil Nadu HSC syllabus), these are corrected through adjusting entries before the Trading, Profit & Loss Account and Balance Sheet are prepared.
Common adjusting entries and their double effect:
| Adjustment | Journal entry | Double effect in final accounts |
|---|---|---|
| Outstanding expense | Expense A/c Dr / To Outstanding Expense A/c | Add to expense (P&L Dr); show as liability |
| Prepaid expense | Prepaid Expense A/c Dr / To Expense A/c | Deduct from expense (P&L Dr); show as asset |
| Accrued income | Accrued Income A/c Dr / To Income A/c | Add to income (P&L Cr); show as asset |
| Income received in advance | Income A/c Dr / To Income Received in Advance A/c | Deduct from income (P&L Cr); show as liability |
| Depreciation | Depreciation A/c Dr / To Asset A/c | Show in P&L Dr; deduct from asset |
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