Adjusting Entry – Types, Examples and Journal Entries for JAIIB AFB

IIBF 18 June 2026 · 8 min read

#accounting for bankers #accrual accounting #accrued expenses #accrued revenue #adjusting entry #deferred revenue #depreciation #iibf exam #jaiib afb #journal entries #matching concept #prepaid expenses

Adjusting entry accounting — this guide gives you the latest 2026 information, key dates, eligibility, fees and study tips for the JAIIB exam.

An adjusting entry is a journal entry passed at the end of an accounting period to ensure that revenue and expenses are recorded in the period to which they belong. Adjusting entries are a core requirement under the accrual basis of accounting and play a vital role in the Accounting and Finance for Bankers (AFB) paper of the JAIIB examination.

What Is an Adjusting Entry?

Adjusting entries are the entries passed to amend already recorded journal entries or to record transactions that have not yet been captured in the books. Their purpose is to make sure that the recorded amounts correctly represent the financial activity for the given accounting period.

Entries in accounting represent the movement of money — how it enters a business, how it leaves, and how it moves between different accounts. Without adjusting entries. The books of accounts will show payments for expenses which do not belong to the current financial year or collections of revenue which have not yet been earned.

Illustrative Example of an Adjusting Entry

A company prepares an invoice for its customers for services performed worth Rs. 20,000 on 09.09.2024, but the customer actually pays the bill on 10.10.2024.

These two transactions will be recorded as follows:

In September: The money will be represented as accounts receivable (income yet to be received)
In October: As the company receives the money, an entry to record the cash deposit in the bank account will be passed

An adjusting entry does not require going back and changing a previously passed entry. Instead, a new entry is passed to amend the previously recorded entry for any changes or corrections needed.

For instance, if the customer in the above example requests a cash discount of 5% (Rs. 1,000), an adjusting entry will reduce both accounts receivable and revenue by Rs. 1,000. This is also an application of the matching concept — expenses are matched with the revenues of the same accounting period.

When Are Adjusting Entries Passed?

Adjusting entries are passed before the preparation of the trial balance and final financial statements. They are typically made at the end of each accounting period — monthly, quarterly, or annually — to close the books accurately.

Why Are Adjusting Entries Required?

Adjustment entries ensure that all business activities are recorded with accurate figures at the correct time. Without them:

Books may show expenses belonging to a different financial year
Revenue earned but not yet received will be missing from income
Revenue received but not yet earned will be overstated as income
Financial statements will misrepresent the true financial position
Stakeholders will be unable to take informed business or credit decisions

Who Must Pass Adjusting Entries?

Businesses whose accounts are maintained on the accrual basis of accounting are required to make adjusting entries. Businesses following the cash basis of accounting may not need them, as they only record transactions when cash is actually received or paid.

Types of Adjusting Entries

There are five main types of adjusting entries recognised in the accounting framework:

1. Accrued Revenues

When revenue is earned in one accounting period but will be invoiced and received in a later period. An entry for accrued revenue must be made so that the income is recognised in the correct period.

Example: A business manufactures safety pins in November worth Rs. 12,000 but will invoice the customer only in December. The business is incurring costs in November; therefore, it must also show the revenue earned in November itself.

Date	Particulars	Dr./Cr.	Dr. Amount	Cr. Amount
November	Accrued Receivables A/c To Revenue A/c	Dr.	12,000	12,000
December	Cash A/c To Accrued Receivables A/c	Dr.	12,000	12,000

2. Accrued Expenses

These are expenses that relate to the current accounting period but will be paid in a later period. The business must record the obligation in the period the expense is incurred.

Example: Monthly rent of Rs. 5,000 for December is due but will be paid in January of the next year because the invoice will be raised in January.

Date	Particulars	Dr./Cr.	Dr. Amount	Cr. Amount
December	Rent A/c To Accrued Expense A/c	Dr.	5,000	5,000
January	Accrued Expense A/c To Cash A/c	Dr.	5,000	5,000

3. Deferred Revenues

Deferred revenues are amounts received in advance for services or goods not yet delivered. Since the service has not been rendered, the amount must be treated as a liability (not income) until the service is delivered.

Example: A business receives an advance payment of Rs. 25,000 for safety pins to be delivered after two months.

Date	Particulars	Dr./Cr.	Dr. Amount	Cr. Amount
January	Cash A/c To Deferred Revenue A/c	Dr.	25,000	25,000
March	Deferred Revenue A/c To Revenue A/c	Dr.	25,000	25,000

4. Prepaid Expenses

Prepaid expenses are payments made in advance for benefits to be received in a future accounting period. The advance payment is an asset and must be expensed only in the period the benefit is received.

Example: The business pays salary to some employees one month in advance – Rs. 40,000 paid in January for February's salary.

Date	Particulars	Dr./Cr.	Dr. Amount	Cr. Amount
January	Salary Paid in Advance A/c To Cash A/c	Dr.	40,000	40,000
February	Salary A/c To Salary Paid in Advance A/c	Dr.	40,000	40,000

5. Depreciation Expenses

When a fixed asset such as machinery. Furniture, or electronic equipment is purchased for a single payment, its cost must be spread over its useful life. This periodic allocation of cost is called depreciation.

At the end of each accounting period during which depreciation is charged. The asset's book value on the balance sheet decreases, and the depreciation expense is recorded in the Profit and Loss statement.

Journal Entry: Depreciation A/c Dr. / Accumulated Depreciation A/c Cr.

Key Points Summary

Adjusting entries are mandatory for businesses following the accrual basis of accounting
They correct the timing of income and expense recognition to match the relevant accounting period
There are five types: accrued revenues, accrued expenses, deferred revenues, prepaid expenses, and depreciation
Without adjusting entries, financial statements will not reflect the true financial position
Adjusting entries are passed before preparing the trial balance and final accounts

Frequently Asked Questions

Q1. What is the main difference between a regular journal entry and an adjusting entry?

A regular journal entry records a completed transaction (e.g.. Cash received or payment made), while an adjusting entry is passed to ensure income and expenses are recorded in the correct period, even when the cash transaction has not yet occurred or occurred in a different period.

Q2. Are adjusting entries necessary for businesses using cash-basis accounting?

No. Cash-basis accounting records only actual cash receipts and payments, so adjusting entries for accruals and deferrals are generally not required. However, businesses following accrual accounting — which is mandatory for most organised businesses and banks — must pass adjusting entries.

Q3. What is an accrued expense and how is it different from a prepaid expense?

An accrued expense is an expense incurred but not yet paid (a liability). While a prepaid expense is paid in advance but not yet used (an asset). Both affect the accuracy of the income statement and balance sheet if not adjusted correctly.

Q4. How does the matching concept relate to adjusting entries?

The matching concept requires that expenses be recorded in the same period as the revenues they help generate. Adjusting entries implement this concept by ensuring accrued expenses and revenues are recorded in the correct period regardless of cash flow timing.

Q5. What happens to deferred revenue when the service is finally delivered?

When the service is delivered. The deferred revenue (liability) is transferred to the revenue account by passing a journal entry — Deferred Revenue A/c Dr. / Revenue A/c Cr. This recognises the income in the period the service was rendered.

Conclusion

Adjusting entries are an essential tool for maintaining accurate books of accounts and producing reliable financial statements. Whether it is accrued income. Prepaid expenses, deferred revenues, or depreciation, each type of adjusting entry serves the purpose of matching income and expenses to the correct accounting period. For JAIIB candidates preparing for the AFB paper. A thorough understanding of adjusting entries — including their types, journal entry format, and the accounting principles they uphold — is critical for scoring well in both theory and numerical questions.

For more on adjusting entry accounting, see the official IIBF circulars and our chapter-wise free notes on iibf.store.

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Source: Indian Institute of Banking & Finance — iibf.org.in

Adjusting Entry – Types, Examples and Journal Entries for JAIIB AFB