Adjusting Entries vs. Correcting Entries
Adjusting entries update accounts for accruals and deferrals. Correcting entries rectify recording errors. Adjusting entries bring financial statements into compliance, while correcting entries fix mistakes.
To rectify errors not affecting the Trial Balance, a journal entry with the correct debit and credit is passed. The error’s effect is canceled by reversing it, then restoring the effect of the correct debit or credit.
Similarities and Differences: Adjusting vs. Closing Entries
Adjusting entries update accounts for accruals and deferrals. Correcting entries rectify recording errors. Adjusting entries bring financial statements into compliance, while correcting entries fix mistakes.
Correcting entries can occur anytime. To rectify errors not affecting the Trial Balance, pass a journal entry with the correct debit and credit. Adjusting entries assign the right revenues and expenses to each period, ensuring accurate year-end financial statements.