How Often Should You Update Your Books? Monthly vs Weekly Bookkeeping
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Adjusting Entries: Why Are These Important?
January 12, 2026
QuickBooks Tips
In the world of bookkeeping, there is nothing more important than accuracy. The financial statements of a business are only as reliable as the records behind them. Which is why those records must truly reflect the financial situation of the business, and why adjusting journal entries is important. Day-to-day recording is a great practice that ensures that the daily sales and expenses are recorded. But some revenues might be earned, but not recorded, or some expenses might be incurred, but not yet paid. If you don’t want your financial statements to be misleading, you need to make some adjustments. Let’s learn all about them!
Contents:
Understand Adjusting Journal Entries
To put it simply, the main purpose of adjusting journal entries is to bring your books up to date. So that they can reflect the economic reality, not the cash movements. Many small businesses use accrual accounting, which means that revenues are recorded as earnings and expenses are incurred, not when the money is actually received or paid. This later requires an adjustment when the money is paid or received. If you don’t know much about bookkeeping, this might sound complicated, but we promise you that everything will make more sense in the end.
Let’s take an example so that we can make everything clearer. Let’s say that you receive cash in advance, for a product or service that has not yet been delivered. This cash is initially recorded as a liability, but as the obligation is fulfilled, this amount should be gradually recognized as revenue through adjusting entries. These are the kind of adjustments that need to be done in order for your books to actually be accurate. When making business decisions, you need to be aware of the real financial situation of your business.
A Key Step in the Accounting Cycle
Adjusting entries are a key step in the accounting cycle. After routine journal entries are posted and a trial balance is prepared, accountants review the accounts to identify items that require adjustment. This review often involves analyzing contracts, invoices, payroll records and estimates. Adjusting journal entries are recorded using the double-entry bookkeeping method, which means that every adjustment will affect at least two accounts. For those who don’t know, double-entry bookkeeping is a system where every transaction is recorded twice, in two different accounts. This is done for accuracy, because if the accounts are not identical, you know that a mistake happened somewhere.
This type of entry ensures that you are always producing financial statements that meet accounting standards. Without this key step, your records might be wrong, assets and liabilities might be misstated and net income might be misleading. While it’s true that accounting software can make everything easier and more accurate, professional human judgment is always needed. Because of all of these reasons, adjusting journal entries is a key step in the accounting cycle. These types of entries are often recorded at the end of the month or year, depending on the number of recorded transactions.
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Adjusting the Income Statement
One of the most significant effects of adjusting entries is on the income statement. Why? Because an income statement reports revenues and expenses for a specific period of time, adjustments are necessary to ensure that the reported profit and loss are accurate. Depreciation expense, for instance, spreads the cost of equipment across the periods in which it contributes to revenue, while accrued wages ensure labor costs are recognized when the work is performed rather than when payment is made. You do not want to omit adjustments, because it will lead to your financial results being distorted.
A Profit and Loss Statement
A profit and loss statement, also known as a P&L statement, is the core financial report showing the company’s revenue, income, expenses and profit, over a specific period. The period typically is week, quarter and year. This report provides essential insight for investors and lenders, as it details how much money a business makes and spends. It tracks the performance and health of a business, allowing for better decision-making. This type of report is often asked for by banks and lenders to evaluate potential investments. So, it’s a good idea to ensure that everything is recorded as correctly as possible.
Adjusting versus Correcting Entries
Adjusting and correcting sound pretty similar, but they serve a different purpose within the bookkeeping process. Correcting entries are made to fix errors that were made when the transactions were originally recorded. You are correcting the errors so that you have accurate data. The most common errors are:
- Recording in the wrong account or category
- Recording the wrong amount
- Duplicating an entry
- Reversing debits and credits
By contrast, the adjusting is not a response to errors, but rather to timing differences. As you can probably tell, both are important if you want to have accurate records at the end of the month. This is why it’s best to work with professional bookkeepers. If you need bookkeeping services, you can contact us!
The Best Practices for Managing Adjusting Entries
An effective management requires organization, documentation and consistency. The process can be carried out by in-house or external bookkeepers. A standardized period-end checklist is the strategy that many businesses prefer, because it allows you to check if the common adjustments are reviewed each month. The process often includes reviewing prepaid unearned accounts, recording depreciation and amortization, and confirming proper revenue cut-off. Keep in mind that each adjustment that you make needs to be supported by calculation and documentation. This simplifies the process of adjusting, and it proves the changes that you made.
Something that every business owner should do is to ensure that monthly record check-ups are made. You don’t want to find yourself in a situation where, at the end of the year, you have tons of correcting and adjusting that needs to happen. This often leads to inaccurate records and penalties. You need and want your business’s financial records to meet the standards of lenders and tax regulations. To ensure that all corrections and adjustments are correct, it’s best to have the opinion of a professional bookkeeper. Proledge offers high-quality bookkeeping services. Even if you might think that doing your own bookkeeping is a good idea, know that you might end up losing more money than you think.
The Role of Adjusting Journal Entries
When bookkeeping journal entries are incomplete or incorrect, you might be making a very bad decision based on them. When you have distorted information about what’s actually going on in your business, you might be missing opportunities, or taking on opportunities that you should’ve skipped. As an example, failing to accrue expenses can lead to the impression that the business is more profitable than it actually is. This then leads to overspending, which is clearly not a very good thing. Or, you might believe that the business is less profitable, which leads to you not expanding the business when you have the opportunity.
There is nothing more valuable, when making decisions, than accurate information. Every big company is built on a foundation of accurate data, because that’s the only way of making the best decisions. Adjusting entries allows you to budget and plan for the future. You don’t have to see them as an obligation, but rather as a tool. Use it as it was intended to and it should help you improve your business’s performance.
Regulatory Compliance and Audit Readiness
As already mentioned, your records must respect some standards are regulations. This is a common problem among business owners doing their own bookkeeping. All financial statements must be prepared under generally accepted accounting principles. If your statements don’t follow those principles, you might face some issues when trying to collaborate with lenders or investors, but also when trying to pay taxes. The good thing is that, with the help of professionals, you don’t have to deal with any of these issues. Check out the services that we offer, and focus on the sides of your business that actually need you.
In the end, the main takeaway should be that adjusting bookkeeping journal entries give you the foundation that you need in order to make decisions that will help your business become more successful. With clear information about the financial situation you can easily collaborate with investors or lenders. You can also take on expression opportunities, and hire new employees who will make things more efficient. This data will act as a guide, telling you what you can and cannot do, and when you can and cannot do it.
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