• Unit 3: Adjusting Entries

    By now, you should understand the guiding principles and concepts of accounting. You will now need to learn how to synthesize this information, which often requires an adjusting journal entry. Before you can learn about adjusting entries, you will need to be able to distinguish between cash- and accrual-based accounting. There is some distinction between the two methods, and while some smaller businesses may be able to effectively use a cash basis of accounting, most organizations use an accrual basis of accounting. Because of this, we will use the accrual basis in this course. Adjusting entries are needed in order to convert the activities that happen in your business to meet the rules that govern the accounting system. For example, if you paid for a year's rent up front, you need to make an adjusting entry to show one month of rent expense. If you did not make this adjustment, your results for this month would be artifically high, and you might make poor business decisions as a result.

    Completing this unit should take you approximately 5 hours.

    • Upon successful completion of this unit, you will be able to:

      • identify why adjusting entries are necessary;
      • distinguish among various types of adjusting entries;
      • apply the revenue recognition and matching principles to transaction analysis;
      • interpret economic transactions and create appropriate adjusting entries; and
      • prepare an adjusted trial balance.

    • 3.1: Adjustments for Financial Reporting

      • Adjustments for Financial Reporting Book

        This chapter dives deeper into the importance of making proper adjustments so that the financial statements reflect the current condition of the organization. One of the main principles of accounting is accurate and honest presentation of the financial condition of an organization. Without the proper posting of adjustments and correcting entries, the financial statements will be incorrect. Accounting is typically done within a specified period so that end users can assess the performance of a business entity. This section also discusses accounting periods, fiscal years, calendar years, adjusting entries, the matching principle, and the two classes and four types of adjusting entries.

      • Cash vs. Accrual Accounting Page

        This video goes into more detail about cash versus accrual based accounting. Compare it to what you read in the chapter previously. This will help to clarify the difference between these two methods of accounting.

    • 3.2: Visualizing the Adjusting Journal

      • Adjusting Entries Overview Page

        You watched this video in Unit 2, but it may be good to review it now that you know more about adjustments. In accounting, you can't introduce new material without referencing the previous steps.

      • Completing the Accounting Cycle Page

        This article breaks down completing the accounting cycle. Pay attention to the section on adjustments, the section on closing out the accounting cycle process, and the steps involved in closing the books, which we will cover in greater detail in the next unit.

    • Unit 3 Assessment

      • Practice Problems Book

        Complete these practice problems. Check your answers after you finish.

      • Unit 3 Assessment Quiz
        Receive a grade

        Take this assessment to see how well you understood this unit.

        • This assessment does not count towards your grade. It is just for practice!
        • You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
        • You can take this assessment as many times as you want, whenever you want.