After preparing the trial balance and reviewing the accounts, the balances of some accounts may need to be changed, by recording additional entries, known as adjusting entries.

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Adjusting Entries

It is an accounting procedure intended for the preparation of entries to settle some accounts and adjust their balances at the end of the fiscal period, in order to know the result of the project, whether profit or loss, and the financial position in a correct way.

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Adjusting revenue and expenses

Among the accounts that need to reviewing it, and which might need to get adjusting entries, are the revenue and expenses accounts. According to the accrual principle of accounting, the revenue and profits that relate to the current fiscal period are recorded, whether they were collected during the Period or not, as well as recording the expenses and losses that relate to the current fiscal period, whether paid during the current period or not, i.e. recognizing to the revenue and expenses that relate to the current fiscal period, and ignore the revenues and expenses that relate to the next accounting periods, to know the real result of financial stements.

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Expenses Adjustment

Expenses can be defined as those sums paid to get the service. When the company pays the expense for the service, an account is opened in the name of the expense and is recorded on the debit side as follows:

Credit	Debit	Description
	xxx	the expense A/C
xxx		To the bank or the cash A/C
		The expense was paid in cash or by check drawn on the bank

At the end of the fiscal period, the expense account appears in the income statement subtracted from the revenue of the current period, to identify the result of the Entity' business whether profit or loss.

Prepaid Expenses:

After preparing the trial balance and reviewing the expense account, the company might be seen that there are expenses recorded in the current period, but they are related to the next fiscal period. Then, according to the accrual principle of accounting, the amount recorded for the next fiscal period is excluded, by opening an account known as prepaid expenses to be recorded in the debit side, while reducing the expense account by recording it on the credit side.

Adjusting entry for reducing the value of the expense by the sum of the prepaid expense

Credit	Debit	Description
	xxx	the prepaid expense A/C
xxx		To the expense A/C
		Recording the prepaid expenses

The prepaid expense account is considered an asset account. It appears at the end of the fiscal period in the Statement of Financial Position (balance sheet) on the asset side, and not in the Income Statement.

Accrued expenses:

After preparing the trial balance and auditing the expense account, the Entity might also note that there are expenses relating to the current period, but they were not record and did not appear in the expenses balance in the trial balance at the end of the period. According to the accrual principle, the current period must be charged with the expense by recording it in the debit side and opening an account to be known as the accrued expenses to be recorded on the credit side as follows:

Entry for recording and adjusting the accrued expense

Credit	Debit	Description
	xxx	the expense A/C
xxx		To the accrued expense A/C
		Recording the value of the accrued expense in the current period

The account of accrued expenses is considered a liabilities account . It appears at the end of the fiscal period in the statement of financial position (balance sheet) on the liabilities side.

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Revenue Adjustment

Revenue can be defined as the sums collected from others or due from others as a result of providing a service. When the Entity receives a sum of money in return for providing a particular service, an account is opened under the name revenues and is recorded on the credit side as follows:

Revenue Entry

Credit	Debit	Description
	xxx	the cash or receivables A/C
xxx		To the revenue A/C
		Revenue received in cash or on credit

At the end of the fiscal period, the revenue account appears in the income statement to find out the result of the entity's business whether profit or loss, and its balance is closed by recording it on the debit column, until its balance becomes zero. The method of closing it will be explained in the account closing lesson.

Accrued Revenue:

After preparing the trial balance and auditing the revenue account, it may be clear to the Entity that there are revenues relating to the current period, but they were yet not received and did not appear in the revenue balance in the trial balance at the end of the period. According to the accrual principle, these revenues must be recorded in the current period by recording them on the credit side and opening an account known as accrued revenue and will be recorded on the debit side as follows:

Entry for recording and adjusting the value of the accrued revenue

Credit	Debit	Description
	xxx	the accrued revenue A/C
xxx		To the revenue A/C
		Recording the value of the accrued revenue

The accrued revenue account is considered an asset account, which appears at the end of the fiscal period in the statement of financial position (balance sheet) on the asset side, not in the income statement.

Deferred Revenue (Unearned Revenue):

After preparing the trial balance and auditing the revenue account, it may be turned out to the Entity that there are Revenue received in the current fiscal period, but is related to the next fiscal period. According to the accrual principle, this Revenue is excluded from the current period by opening an account in the name of Deferred Revenue to be recorded on the credit side, and reducing the revenue account by recording it on the debit side as follows:

Entry for recording and adjusting the value of the deferred (unearned) revenue by reducing the value of the revenue

Credit	Debit	Description
	xxx	the revenue A/C
xxx		To deferred (unearned) revenue A/C
		Recording the deferred (unearned) revenue

The deferred (unearned) revenue account is a liabilities account (debt). it appears at the end of the fiscal period in the statement of financial position (balance sheet) on the side of the liabilities not in the income statement.

After completing the record of the adjusting entries for the revenues, expenses and other accounts and adjusting their balances, a trial balance, after preparing the adjustments (Adjusted Trial Balance) is prepared again as we previously explained, so that the balances of the accounts appear with their new values after the adjustment and to start preparing the financial statements.