Accrual-type adjusting entry definition

What is an Accrual-Type Adjusting Entry?

An accrual-type adjusting entry is a journal entry recorded at the end of a reporting period that alters the amount of revenues or expenses recorded in the income statement. The four types of accrual-type adjusting entries are noted below.

  • An expense increase for expenses that have been incurred, but for which no supplier invoice has yet been received.

  • An expense decrease for expenses that have been recognized, but which have not yet been incurred.

  • A revenue increase for revenues that have been earned, but for which no customer invoice has yet been created.

  • A revenue decrease for revenues that have been recognized, but which have not yet been earned.

It is extremely common to record these entries when the accountant is trying to close the books fast, and so cannot wait for the arrival of supporting documents that would otherwise trigger the recordation of a variety of transactions.

Accrual-Type Adjusting Entry Best Practices

There are several best practices associated with the use of accrual-type adjusting entries, which are as follows:

  • Set a usage threshold. It takes time to research and record these entries, so set up a minimum threshold to keep from recording immaterial entries. This can significantly shorten the time required to close the books each month.

  • Use a template. Adjusting entries are subject to error, so set up standard templates for each one that you expect to use on a regular basis. This template includes the accounts and account numbers that you expect to use. In a few cases, it may even be possible to include a standard amount in these templates.

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