---
title: "Adjusting entries: Types, examples, and when to reverse them"
description: "Adjusting entries record revenue and expenses in the right period. See the 7 types, a full month-end example, and when to reverse them."
url: https://emptyspaces.ai/resources/blog/adjusting-entries
language: en
---

[Blog](https://emptyspaces.ai/resources/blog) Guide

# Adjusting entries: Types, examples, and when to reverse them

Published October 23, 2026 12 min read

Key takeaways

- Adjusting entries are journal entries you record at the end of a period so revenue and expenses land in the month they were earned or incurred, not the month cash moved.
- In the October close example below, seven entries add $57,000 of revenue and $747,500 of expense, and only the three accruals need a reversal on November 1.
- Skipping the reversal on an $18,000 legal accrual books the same work twice, which overstates November expense by $18,000.

Adjusting entries are journal entries recorded at the end of an accounting period to update accounts for revenue earned and expenses incurred that the books haven't captured yet. Getting them right gives you an accurate income statement, catches accruals that would otherwise double count, and keeps your team audit-ready. This guide covers the types, a full month-end example, the accounts affected, reversals, how to write an entry, and the controls behind it.

## What are adjusting entries?

In accounting, adjusting entries, also called adjusting journal entries, are the period-end entries that move your books from what was recorded during the month to what actually happened in it. You post them after the unadjusted trial balance and before you prepare financial statements.

- **Accrual** Recording revenue or expense before cash moves, such as wages earned but not yet paid
- **Deferral** Moving an amount paid or received earlier, such as a prepaid subscription or a customer's upfront payment, into expense or revenue as it's used or earned
- **Estimate** Recording an amount that depends on judgment, such as depreciation or expected credit losses

Every adjusting entry is a journal entry, but not every journal entry is an adjustment. A regular journal entry records a transaction when it happens, such as a vendor bill or a customer payment. An adjustment corrects timing at the end of the period, so you need them whenever you report on the accrual basis. For the full set of month-end entries and what to review in each, see [Month-end journal entries: Examples and what to review](https://emptyspaces.ai/resources/blog/month-end-journal-entries).

## What are the types of adjusting entries?

There are four core types: accrued revenue, accrued expenses, prepaid expenses, and deferred revenue. Lists that add depreciation, credit losses, and inventory or supplies give five, six, or seven types. Knowing the type tells you which accounts to use, what support to attach, and whether to reverse it.

| Type | What happened | Entry | Reverse next period? |
| --------------------- | ------------------------------------------------------- | -------------------------------------------------------------------------- | ----------------------------------------- |
| Accrued revenue | You earned revenue you haven't billed | Debit accounts receivable or unbilled receivable, credit revenue | Yes, if an invoice will follow |
| Accrued expense | You incurred a cost you haven't been billed for or paid | Debit expense, credit accrued liabilities | Yes, if an invoice or payroll will follow |
| Prepaid expense | You paid in advance and used part of the benefit | Debit expense, credit prepaid asset | No |
| Deferred revenue | A customer paid in advance and you delivered part of it | Debit deferred revenue, credit revenue | No |
| Depreciation | A fixed asset was used for another month | Debit depreciation expense, credit accumulated depreciation | No |
| Credit losses | Expected uncollectible receivables changed | Debit bad debt expense, credit allowance for credit losses | No |
| Inventory or supplies | The count is lower than the book balance | Debit cost of goods sold or supplies expense, credit inventory or supplies | No |

The first four are the accrual and deferral types. Adjusting entries for depreciation work like a deferral: you paid for the asset up front, and you expense its cost over its useful life. So the answer to "what are the 7 adjusting entries?" is these four plus three common estimates and allocations.

For a deeper look at the two accrual types, see [Accrued expenses](https://emptyspaces.ai/resources/blog/accrued-expenses) and [Accrued revenue: Definition, examples, and journal entry](https://emptyspaces.ai/resources/blog/accrued-revenue).

## Adjusting entries examples: One month-end, every entry

Seeing every adjustment for one company in one month shows how they fit together and what they do to the income statement. Each amount below comes from a schedule or a calculation your team can attach as support.

Example

A software company with about 300 employees closes October 2026. All amounts are illustrative.

| Entry | Calculation | Amount |
| ---------------------------------------------------------------------- | ------------------------------------------------------------------ | -------- |
| 1. Accrued wages Dr Wages expense — Cr Accrued payroll | 5 unpaid workdays, October 26–30, × $140,000 a day | $700,000 |
| 2. Accrued legal fees Dr Legal expense — Cr Accrued liabilities | Firm's estimate for October work, invoice not yet received | $18,000 |
| 3. Accrued revenue Dr Unbilled receivables — Cr Services revenue | Implementation milestone delivered October 28, invoiced November 3 | $27,000 |
| 4. Prepaid software Dr Software expense — Cr Prepaid expenses | $120,000 annual subscription, July–June, ÷ 12 | $10,000 |
| 5. Deferred revenue Dr Deferred revenue — Cr Subscription revenue | $360,000 annual contract starting October 1, ÷ 12 | $30,000 |
| 6. Depreciation Dr Depreciation expense — Cr Accumulated depreciation | $540,000 of laptops and servers over 36 months | $15,000 |
| 7. Credit losses Dr Bad debt expense — Cr Allowance for credit losses | Allowance needed $62,000 per the aging, balance $57,500 | $4,500 |

The seven entries add $57,000 of revenue (entries 3 and 5) and $747,500 of expense (entries 1, 2, 4, 6, and 7). That's a $690,500 reduction to October's pretax income compared with the unadjusted books.

An illustration of the Close Agent's seven October 2026 adjusting entries in review, each with its workpaper: accrued wages for October 26 to 30, 700,000.00; accrued legal fees, 18,000.00; and an unbilled implementation milestone, 27,000.00, each reversing on November 1; prepaid software, 10,000.00; a deferred revenue release, 30,000.00; depreciation of laptops and servers, 15,000.00; and the allowance for credit losses, 4,500.00, which do not reverse. Together they add 57,000.00 of revenue and 747,500.00 of expense, a 690,500.00 reduction to pretax income. Demo data.

Every entry above touches one income statement account and one balance sheet account, and none of them touches cash. Entries 1, 2, and 3 are accruals that the next payroll, vendor invoice, and customer invoice will settle, so they're the ones to reverse on November 1. Entries 4–7 stay, because no later transaction repeats them.

## Which accounts do adjusting entries affect?

Adjusting entries affect at least one income statement account (revenue or expense) and at least one balance sheet account (an asset, a liability, or a contra-asset). Checking that pairing is a quick way to catch an entry coded to the wrong account. It's the first of three rules for adjusting entries:

1. **One income statement account and one balance sheet account** In every entry
2. **Recorded at the end of the period** After the unadjusted trial balance and before the financial statements
3. **No cash** Because the cash side was already recorded when the money moved, or will be when it does

### Do adjusting entries ever affect cash?

In the textbook definition, they never affect cash. In practice, the entries from your bank reconciliation do. Bank fees, interest earned, and returned customer payments appear on the bank statement first, so you record them in the books at month-end.

For example, $350 of October bank fees found during the reconciliation is booked as a debit to bank fees and a credit to cash. Whether you call it an adjustment or a reconciliation entry, it belongs in the same month-end review. For where these entries land before the statements, see [Post-closing trial balance: Examples, types, and when to prepare it](https://emptyspaces.ai/resources/blog/post-closing-trial-balance).

## When should you reverse an adjusting entry?

Reverse the entry on the first day of the next period when a later transaction will record the same revenue or expense. That covers accruals that an invoice or payroll will settle. Reversing keeps the invoice or payroll from being counted twice, and it lets your team post that transaction normally without checking what was accrued.

| Entry | Reverse? | Why |
| ------------------------------------------------------------------- | -------- | --------------------------------------------- |
| Accrued wages, bonuses, and payroll taxes | Yes | The next payroll records the full expense |
| Accrued vendor expenses | Yes | The vendor invoice records the full expense |
| Accrued revenue that will be invoiced | Yes | The customer invoice records the full revenue |
| Prepaid expenses and deferred revenue recorded on the balance sheet | No | The schedule keeps releasing the balance |
| Depreciation and credit losses | No | No later transaction repeats the entry |

Example

Your team accrues $18,000 of October legal fees on October 31. The invoice arrives on November 12 for $18,600 and is coded to legal expense.

| Account | Debit | Credit |
| -------------------------------------- | ------- | ------- |
| October 31 · Accrue October legal fees | | |
| Legal expense | $18,000 | |
| Accrued liabilities | | $18,000 |
| November 1 · Reverse the accrual | | |
| Accrued liabilities | $18,000 | |
| Legal expense | | $18,000 |
| November 12 · Record the invoice | | |
| Legal expense | $18,600 | |
| Accounts payable | | $18,600 |

With the reversal, November shows $600 of legal expense for October's work, the difference between the estimate and the invoice. Without it, November shows the full $18,600 while the $18,000 accrual stays on the balance sheet. October's work is then expensed twice, and November expense is overstated by $18,000 until someone finds the stale accrual.

An illustration of journal entry RB-7C41D0, prepared by the Close Agent: an 18,000.00 October legal fees accrual, debit 62100 and credit 21500, posting on October 31 and reversing on November 1, with the accruals workpaper attached, waiting on the Controller's approval. Demo data.

## Adjusting entries vs correcting, reversing, and closing entries

Adjusting, correcting, reversing, and closing entries are all journal entries, but each one has a different job and timing. Keeping them separate helps you review each one against the right support.

| Entry | Purpose | When | Example |
| ---------------- | --------------------------------------------------------- | ---------------------------- | ----------------------------------------------------- |
| Adjusting entry | Records revenue and expense in the right period | End of the period | Accrue October wages |
| Correcting entry | Fixes an error | When the error is found | Move a $500 laptop from supplies expense to equipment |
| Reversing entry | Cancels an accrual so the next transaction posts normally | First day of the next period | Reverse the wage accrual on November 1 |
| Closing entry | Moves revenue and expense balances to retained earnings | End of the fiscal year | Close income statement accounts |

A correcting entry for an earlier period needs extra care, and whether that period is closed in your ERP doesn't decide the treatment. First assess the error's materiality to both the prior and the current period. A material error in statements you've already issued requires a restatement. Even an immaterial prior-period error requires a revision of the prior period if correcting it now, or leaving it uncorrected, would be material to the current period, as Paul Munter, then the SEC's Acting Chief Accountant, explained in a March 2022 statement on assessing materiality. If neither applies, record the correction in the current period with a documented explanation.

## How do you write an adjusting journal entry?

Write an adjusting journal entry by starting from the balance that's wrong, calculating the change, and recording it with its support and reversal date. Following the same steps every month keeps entries consistent and easy to review.

1. **Find what's missing** Use reconciliations, open purchase orders, payroll calendars, contracts, and amortization schedules to find revenue or expense the books haven't captured.
2. **Calculate the amount** Use the rule for that entry: unpaid workdays × daily payroll, contract value ÷ months of service, or the vendor's estimate for work performed.
3. **Record the entry** Date it on the last day of the period, name both accounts, and write a description a reviewer can follow without asking.
4. **Attach the support** Add the schedule, estimate, or calculation behind the number.
5. **Set the reversal** For accruals, enter a reversal date of the first day of the next period.
6. **Get it reviewed** Someone other than the preparer approves it before it posts.

### How do you set up recurring and auto-reversing entries in NetSuite?

In NetSuite, you set up an auto-reversing entry on the journal itself and make it recur with a memorized transaction. Oracle's NetSuite documentation describes the steps:

1. **Enter the journal** Go to **Transactions > Financial > Make Journal Entries** and enter the entry dated the last day of the month.
2. **Set the reversal date** Enter a **Reversal Date**, such as the first day of the next month. The reversal is the exact opposite of the original and stays linked to it.
3. **Choose when it's created** Check **Defer Entry** to have NetSuite create the reversal automatically on the reversal date, or clear it to create the reversal immediately, dated on the reversal date.
4. **Memorize it** Save, then memorize the journal to make it recur. You choose whether each one posts automatically or reminds your team to post it, and you manage them under **Transactions > Management > Enter Memorized Transactions**.

Use automatic posting for fixed amounts, such as a monthly allocation, and reminders for accruals that change every month, such as payroll. NetSuite never posts a memorized transaction into a closed period. It moves it to the next open period instead. In QuickBooks Online, you open the journal entry and select **Reverse**, which creates an offsetting entry.

## What controls should cover adjusting entries?

These entries need tighter controls than routine transactions, because they rely on estimates and are posted by hand at the busiest point of the close. Auditors test them directly. PCAOB AS 2201 requires the auditor to evaluate the period-end financial reporting process. AS 2401 requires auditors to examine journal entries and other adjustments for evidence of possible material misstatement due to fraud.

For a company of about 300 people, a clear split of who prepares and who reviews each entry looks like this:

| Entry | Prepares | Reviews |
| --------------------------------------------------- | ---------------------------- | --------------------------------------------------------- |
| Deferred and accrued revenue | Revenue accountant | Revenue manager, with the controller for contract changes |
| Payroll, bonus, and commission accruals | Payroll or senior accountant | Accounting manager |
| Vendor accruals | Staff or senior accountant | Accounting manager |
| Prepaid amortization and depreciation | Staff accountant | Senior accountant |
| Estimates, such as credit losses and legal reserves | Accounting manager | Controller |

Three different thresholds keep the review proportionate:

- **Posting threshold** The amount below which a routine difference isn't booked, such as $2,500
- **Approval threshold** The amount at which a more senior approver signs off, such as controller approval above $25,000
- **Financial statement materiality** The level your auditors use to judge whether errors could change a reader's decision

Set these in a written policy and apply them consistently. No one should approve their own entry, and every manual entry needs support, even below the posting threshold. Splitting an entry to stay under a threshold should be prohibited. For where these tasks sit in the close and who owns them, see [Month-end close checklist: Owners, inputs, and review](https://emptyspaces.ai/resources/blog/month-end-close-checklist).

An illustration of the adjusting entries on an October 2026 close checklist, in two groups. Accruals: the payroll accrual, the vendor and legal fee accruals and the unbilled revenue accrual in review, and the November reversals not started. Allocations and estimates: prepaid amortization and depreciation in review, the deferred revenue release in progress and the allowance for credit losses not started. Each is prepared by the Close Agent with a named reviewer. Demo data.

## How we approach it

Our Close Agent prepares adjusting entries as tasks on your close checklist. It builds each accrual, prepaid amortization, and reversing entry as a balanced journal entry with its workpaper, and links every amount to its source. Nothing posts to your ERP until a named approver signs off. If you want your month-end adjustments prepared before your team starts the close, explore [our Close Agent](https://emptyspaces.ai/product/close).

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