Adjusting Entry in Accounting: Types, Examples & Journal Entries (2026 JAIIB
If one topic quietly decides your score in Accounting. Finance for Bankers (AFB). It is the adjusting entry.
Examiners love it because it tests whether you truly understand accounting. Not just memorise it. The good news?
Once you crack the logic. These become some of the easiest marks in the entire JAIIB paper.
An adjusting entry is a journal entry passed at the end of an accounting period. Revenue and expenses land in the period they actually belong to. It is the engine of the accrual basis of accounting. And it shows up again. Again in JAIIB AFB theory and numerical questions.
This 2026 guide rebuilds the topic from the ground up — clear definitions. All five types. Solved journal entries, a quick-facts table, common mistakes and exam-ready FAQs. By the end, adjusting entries will feel obvious.
⭐ Key Takeaways
- An adjusting entry corrects the timing of income and expense recognition.
- It is mandatory under the accrual basis, not the cash basis.
- There are five types: accrued revenue. Accrued expense, deferred revenue, prepaid expense and depreciation.
- Entries are passed before the trial balance and final accounts.
- They enforce the matching concept — expenses sit with the revenue they generate.
What Is an Adjusting Entry?
An adjusting entry is a journal entry passed at the end of an accounting period to amend an already-recorded entry. Or to record a transaction that has not yet been captured in the books. Its single goal is to make recorded amounts reflect the real financial activity of that period.
Think of entries in accounting as a map of money. How it enters a business. How it leaves, and how it moves between accounts. Adjusting entries simply keep that map honest at period-end.
Without them. Your books will show expenses that belong to another financial year. Or count cash you have collected but not yet earned. The numbers stop telling the truth. And every report built on top of them inherits the error.
The Core Idea in One Line
Cash timing and economic activity rarely match. An adjusting entry bridges that gap so income. Expenses are recognised when they occur. Not merely when cash changes hands.
Why Adjusting Entries Matter (And Why JAIIB Tests Them)
Banks, NBFCs and almost every organised business run on accrual accounting. Regulators. Auditors.
Credit teams rely on financial statements that show a true. Fair view. Adjusting entries are what make that view possible.
For a JAIIB AFB candidate, the payoff is direct. The same logic powers questions on the matching concept. Accrued income, outstanding expenses, prepaid items and depreciation. Master one mechanism and you unlock a whole cluster of marks.
Skip adjusting entries and the damage is real:
- Books show expenses belonging to a different financial year.
- Revenue earned but not yet received goes missing from income.
- Revenue received but not yet earned is wrongly overstated as income.
- Financial statements misrepresent the true financial position.
- Stakeholders cannot take informed business or credit decisions.
A Simple Example to Anchor the Concept
A company raises an invoice for services worth Rs. 20,000 on 09.09.2024, but the customer actually pays on 10.10.2024. Two separate things happen across two months:
- In September: the amount is recorded as accounts receivable. Income earned but not yet received.
- In October: when the money arrives. An entry records the cash deposited into the bank.
Notice the key principle: an adjusting entry does not rewrite a previously passed entry. Instead, a fresh entry amends or completes it.
Suppose the customer claims a 5% cash discount (Rs. 1,000). An adjusting entry reduces both accounts receivable and revenue by Rs.
1,000. This is the matching concept in action. The discount expense sits in the same period as the related revenue.
When Are Adjusting Entries Passed?
Adjusting entries are passed before the trial balance. The final financial statements are prepared. They are made at the close of each accounting period — monthly. Quarterly or annually — to shut the books cleanly.
Exam tip: If a question asks for the sequence of the accounting cycle. Remember — journal → ledger → adjusting entries → trial balance → final accounts. The adjusting step always comes before the trial balance.
Who Must Pass Adjusting Entries?
Any business that maintains accounts on the accrual basis must pass adjusting entries. Businesses on the cash basis generally do not. Because they only record a transaction when cash is actually received or paid.
Since banks and most organised enterprises follow accrual accounting. Adjusting entries are a daily reality in the financial world you are preparing to enter.
The 5 Types of Adjusting Entries (With Journal Entries)
The accounting framework recognises five main types of adjusting entries. Learn the trigger and the format for each. And you can solve almost any AFB question on this topic.
1. Accrued Revenues
Trigger: revenue is earned in one period. Invoiced and received in a later period. You recognise the income now so it lands in the correct period.
Example: a business manufactures safety pins worth Rs. 12,000 in November but invoices the customer only in December. Costs are incurred in November. So the revenue must also appear in November.
| Date | Particulars | Dr./Cr. | Dr. (Rs.) | Cr. (Rs.) |
|---|---|---|---|---|
| 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
Trigger: an expense relates to the current period. Will be paid later. You record the obligation in the period the expense is incurred.
Example: monthly rent of Rs. 5,000 for December is due but paid in January. Because the invoice is raised in January.
| Date | Particulars | Dr./Cr. | Dr. (Rs.) | Cr. (Rs.) |
|---|---|---|---|---|
| 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
Trigger: money is received in advance for goods or services not yet delivered. Until you deliver, the amount is a liability, not income.
Example: a business receives an advance of Rs. 25,000 for safety pins to be delivered after two months.
| Date | Particulars | Dr./Cr. | Dr. (Rs.) | Cr. (Rs.) |
|---|---|---|---|---|
| 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
Trigger: you pay in advance for a benefit you will receive later. The advance is an asset first. And becomes an expense only when the benefit is consumed.
Example: the business pays Rs. 40,000 in January for February's salary.
| Date | Particulars | Dr./Cr. | Dr. (Rs.) | Cr. (Rs.) |
|---|---|---|---|---|
| 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
Trigger: a fixed asset — machinery. Furniture or electronic equipment — is bought for a single payment. But its cost must be spread across its useful life. This periodic allocation is depreciation.
Each period that depreciation is charged. The asset's book value on the balance sheet falls. And the depreciation expense appears in the Profit and Loss statement.
| Particulars | Dr./Cr. |
|---|---|
| Depreciation A/c | Dr. |
| To Accumulated Depreciation A/c | Cr. |
Quick-Facts Table: The 5 Adjusting Entries at a Glance
Use this revision table the night before your exam. It compresses the whole topic into one screen.
| Type | Cash vs Activity | Balance Sheet Effect |
|---|---|---|
| Accrued Revenue | Earned now, cash later | Creates an asset (receivable) |
| Accrued Expense | Incurred now, cash later | Creates a liability (payable) |
| Deferred Revenue | Cash now, earned later | Creates a liability (advance) |
| Prepaid Expense | Cash now, consumed later | Creates an asset (prepaid) |
| Depreciation | Cash once, cost spread | Reduces asset book value |
How to Study Adjusting Entries for JAIIB AFB
Theory alone will not carry you through the numerical questions. Follow this simple, high-yield routine.
- Learn the trigger, not the entry. Ask: has cash moved, and has the activity happened? The mismatch tells you which of the five types applies.
- Write the format from memory. Practise each journal entry on paper until the Dr./Cr. flow is automatic.
- Tie every entry to a principle. Connect it to the matching concept or the accrual basis. Examiners reward this understanding.
- Drill with timed practice. Solve a fresh set on our mock tests with bilingual explanations and a public leaderboard.
- Revise with the quick-facts table. One glance the night before locks the whole topic in.
For deeper chapter-wise notes, browse our free guides built specifically for JAIIB and CAIIB aspirants.
Common Mistakes to Avoid
These are the slips that cost candidates easy marks. Avoid them and you instantly climb above the average scorer.
- Confusing accrued with deferred. Accrued means activity first, cash later. Deferred means cash first, activity later. Reverse them and the whole entry flips.
- Treating prepaid expenses as expenses immediately. A prepaid item is an asset until consumed — not a Day 1 expense.
- Rewriting the original entry. Adjusting entries add a fresh entry; they never edit the past one.
- Recording deferred revenue as income. Until you deliver, it is a liability, never revenue.
- Forgetting depreciation is an adjusting entry. It absolutely is — and it is a frequent exam favourite.
- Misplacing the timing. Adjusting entries come before the trial balance, not after the 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. Such as cash received or a payment made. An adjusting entry ensures income. Expenses are recorded in the correct period. Even when the cash transaction has not yet happened 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 standard 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 incurred but not yet paid. So it is a liability. A prepaid expense is paid in advance but not yet used.
So it is an asset. Both distort the income statement. Balance sheet if they are not adjusted correctly.
Q4. How does the matching concept relate to adjusting entries?
The matching concept requires expenses to be recorded in the same period as the revenues they help generate. Adjusting entries put this concept into practice by recording accrued. Deferred items in the right period. Regardless of when cash actually moves.
Q5. What happens to deferred revenue when the service is finally delivered?
On delivery. The deferred revenue (a liability) is transferred to the revenue account: Deferred Revenue A/c Dr. / Revenue A/c Cr.
This recognises the income in the period the service was actually rendered. For the latest exam weightage and syllabus details. Confirm on the latest official IIBF notification.
Conclusion: Turn a Tricky Topic Into Guaranteed Marks
Adjusting entries are the difference between books that merely look complete. Books that are actually true and fair. Whether it is accrued income.
Prepaid expenses. Deferred revenue or depreciation. Each type does one job.
It matches income and expenses to the correct accounting period.
For JAIIB AFB, this is a high-return topic. Learn the five triggers. Write each journal entry from memory.
And connect every entry to the accrual basis and matching concept. Do that. And adjusting-entry questions stop being a hurdle and start being free marks.
Now reinforce it with practice — solve a timed set. Revise the quick-facts table. And walk into the exam with this topic fully owned.
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