Adjusting entries are journal entries recorded at the end of an accounting period to alter the ending balances in

various general ledger accounts. These adjustments are made to more closely align the reported results and
financial position of a business with the requirements of an accounting framework, such as GAAP or IFRS. This
generally involves the matching of revenues to expenses under the matching principle, and so impacts reported
revenue and expense levels.

• Accrued revenues (also called accrued assets) are revenues already earned but not
yet paid or recorded.
• Unearned revenues (or deferred revenues) are revenues received in cash and
recorded as liabilities prior to being earned.
• Accrued expenses (also called accrued liabilities) are expenses
already incurred but not yet paid or recorded.
• Prepaid expenses (or deferred expenses) are expenses paid in cash and recorded as
assets prior to being used.
• Other adjusting entries include depreciation of fixed assets, allowances for bad debts,
and inventory adjustments.

Closing entries, also called closing journal entries, are entries made at the end of an
accounting period to zero out all temporary accounts and transfer their balances to
permanent accounts. In other words, the temporary accounts are closed or reset at the end
of the year. This is commonly referred to as closing the books.
Temporary accounts are accounts that accumulate balances for one accounting period
only. At the end of the accounting period the balances in these accounts are closed, or
zeroed out, so that the accounts can begin accumulating new balances that apply only to
the current period.
Temporary Accounts The temporary account types are listed below. Temporary Accounts
•Revenue •Expense •Income Summary •Drawing (withdrawals)
Accounts whose balances remain open indefinitely are known as real or permanent
accounts. The real account types are listed below.
Real Accounts •Assets •Liabilities •Capital Note that these are the Balance Sheet Accounts.