Adjusting Entries

The purpose of adjusting entries is to assign to each accounting period appropriate amounts of revenue and expense.
For example, overnight auto service purchased shop supplies that will be used for several month. Thus an adjusting entry is required to record the expense associated with the shop supplies that overnight uses each month.
Types of Adjusting Entries
                           1: Converting asset to expense.
                           2: Converting liabilities to revenue.
                           3: Accruing unpaid expense.
                           4: Accruing uncollected revenue.
  Adjusting entries to convert asset to expenses result from cash being paid prior to an expense being incurred.
  Adjusting entries to convert liabilities to revenue result from cash being received prior to revenue being earned.
  Adjusting entries to accrue unpaid expenses result from expenses being incurred before cash is paid.
  Adjusting entries to accrue uncollected revenue result from revenue being earned before cash is received.
Every adjusting entry involves the recognition of either revenue or expenses. Revenue and expenses represent changes in Owners Equity.
adjusting entries are based on the concept of accrual accounting, not upon monthly bills or month end transactions. 

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