Adjusting Entries Q&A

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on March 25, 2022

Test your understanding of adjusting entries by answering these 10 short questions. We suggest that you try to answer each question yourself before clicking on the ‘See answer’ button.

If you find it challenging to answer any of these questions, read our article on adjusting entries from the explanation section of this website.

1. What is an adjustment?

2. What is the purpose of adjustments?

3. What are outstanding expenses?

4. How are prepaid expenses and outstanding expenses shown in the balance sheet?

5. What are prepaid expenses?

6. What is accrued income/revenue?

7. What is unearned income/revenue?

8. Rent is paid in advance, amounting to $1,500 on 1 January 2016. During the month of January, $500 in rent was expired. What adjusting entry would be made on 31 January 2016?

9. At the end of the 2020 accounting year, salaries amounting to $2,500 are outstanding. What adjusting entry would be made at the end of the accounting year?

10. During Period A, Lion Advertising Company receives $1,200 in cash from a client. Advertising services valued at $600 are provided in Period A and the rest will be provided in Period B.
What adjusting entry should be made by Lion Advertising Company at the end of Period A?

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Frequently Asked Questions

What are the most common types of adjustments?

The most common adjustments in accounting include Depreciation, inventory, Accounts Receivable and accounts payable.

Why do we make adjustments?

Generally, you will need to adjust the journal entry to record the adjustment. This will usually involve debiting one account and crediting another account.

Why do we make adjustments?

Why do we make adjustments?

What is the difference between an adjustment and a correction?

An adjustment is a permanent change to the Financial Statements. On the other hand, a correction is simply a reversal of an earlier adjustment.

How often do I need to make adjustments?

This depends on the nature of your business and the nature of the adjustments. Generally, you will need to make adjustments at least quarterly to ensure that the Financial Statements are accurate.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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