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What is the difference between adjusting entries and correcting entries?

Author:
Harold Averkamp, CPA, MBA

Definition of Adjusting Entries

Generally, adjusting entries are required at the end of every accounting period so that a company’s financial statements reflect the accrual method of accounting.

Adjusting entries involve at least one income statement account and at least one balance sheet account.

Examples of Adjusting Entries

The following are some examples of the need for adjusting entries:

  • To report expenses and losses along with the related liabilities for transactions that have occurred but are not yet recorded in the general ledger accounts
  • To report revenues and gains along with the related assets for transactions that have occurred but are not yet recorded in the general ledger accounts
  • To defer future expenses and the related assets that were included in a previously recorded transaction
  • To defer future revenues and the related liabilities that were included in a previously recorded transaction
  • To record depreciation expense and/or bad debts expense and the change in the related contra asset account

Definition of Correcting Entries

Correcting entries are journal entries made to correct an error in a previously recorded transaction. Correcting entries can involve any combination of income statement accounts and balance sheet accounts.

Examples of Correcting Entries

The following are two examples of the need for correcting entries:

  • To correct an erroneous amount used when recording a previous transaction
  • To move an amount from an incorrect account (that was used when recording a previous transaction) to the correct account
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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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