Adjusting Entries for Business Owners
Finish the accounting period before relying on the reports.
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Start with the question in front of you.
Owners reviewing month-end figures with a bookkeeper or accountant.
This NP guide combines plain-language explanations, fictional business examples, and practice activities. Read the example, try the exercise, then compare your reasoning with the explanation provided.
What you will learn
- Recognize accruals, deferrals, and estimates.
- Calculate supported ending balances.
- Follow adjustments into revised financial statements.
A useful idea before you download
A reconciled bank account is only one part of a complete close. Unpaid wages, used insurance, earned customer deposits, and depreciation may need attention even when there is no new bank transaction.
Follow the numbers
If a $1,200 prepaid policy covers twelve equal months, the monthly adjustment is a $100 debit to insurance expense and a $100 credit to prepaid insurance.
Depreciation: where each number comes from
The PDF contains two different equipment examples. Both produce $300 per month, but their starting numbers differ.
Example 1: the estimates section
- $15,000 machine cost − $600 estimated residual value = $14,400 to allocate.
- Four years × 12 = 48 months.
- $14,400 ÷ 48 = $300 per full month.
Example 2: the complete September case
- $18,000 equipment cost − $0 residual value = $18,000 to allocate.
- Five years × 12 = 60 months.
- $18,000 ÷ 60 = $300 for September.
For either monthly entry, debit depreciation expense $300 and credit accumulated depreciation $300. Monthly profit falls by $300; accumulated depreciation increases by $300; cash changes by $0 from this entry. Keep the two cases separate instead of combining their costs or useful lives.
How to support your own numbers: Use the purchase invoice and asset register for recorded cost, documented estimates for useful life and residual value, the date the asset became ready for use for timing, and the depreciation schedule for the charge already recorded. Residual value means estimated value at the end of the useful life. These are simplified book examples using straight-line depreciation and full months; tax calculations can differ.
Try this in your business
Create a month-end list of recurring adjustments with the calculation, supporting document, preparer, and review date.
Keep a note of the evidence you used and the question you still need to resolve. Bring that question to your next bookkeeping review.
How to use the guide
- Read the explanation and worked example.
- Complete the practice before checking the answer.
- Choose one action for your next financial review.
A common question
Should I create an adjustment just to make a report look right?
No. Begin with the supported balance that should exist, compare it with the recorded balance, and document the reason for the difference.
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Get the Free GuidesEducational material with illustrative examples. Apply the appropriate rules and facts to your business. © 2026 Net Profits Consulting LLC. We Count More Than Numbers.
