What is Adjusting Entries Accounting?
Adjusting entries are journal entries posted at the end of an accounting period to align revenues and expenses with the periods in which they were earned or incurred, in line with the accrual principle.
How It Works
- Identify accruals (earned/incurred but not yet recorded) and deferrals (recorded but not yet earned/incurred).
- Post entries for accrued revenue, accrued expenses, prepaid expenses, unearned revenue, depreciation, and inventory adjustments.
- Re-run the trial balance to confirm books are ready for closing.
Saudi Context
ZATCA’s e-invoicing and corporate tax review process expects accruals to be booked in the correct period. Audit firms in Saudi Arabia commonly test adjusting entries during year-end fieldwork to validate cut-off.
Example
A consulting firm in Jeddah delivered SAR 50,000 of services in December but will invoice in January. The adjusting entry debits Accrued Revenue and credits Service Revenue SAR 50,000 to recognize it in the correct year.