Adjusting journal entries change the trial balance by moving amounts between accounts at period end, so income and expenses land in the period they belong to. Each entry has equal debits and credits, so the adjusted trial balance still balances. Record each entry in a numbered journal log, then add an adjustment column beside the unadjusted balances.
What adjusting journal entries do to the trial balance
An adjusting journal entry is a period-end entry that corrects or completes the books before statements are prepared. The unadjusted trial balance shows the client's books as kept. The adjusted trial balance shows those balances after the firm's entries. The gap between the two columns is the set of adjusting entries, and nothing else.
Every adjusting entry touches at least one balance sheet account and at least one income or expense account, or moves an amount between two accounts of the same kind. Because each entry's debits equal its credits, the adjusted trial balance totals change by the same amount on both sides. Debits still equal credits after any number of correct entries.
What changes is profit. An entry that adds an expense or removes revenue lowers net income. An entry that moves cash already received into revenue raises it. A firm that reports the unadjusted net income to a client and then the adjusted figure should be able to explain the difference entry by entry.
The worked example
The rest of this post follows one fictional client, Example Design Studio LLC, with a December 31, 2026 year end. Every name and amount is made up for the example. Its unadjusted trial balance totals $161,000 on each side, and it needs four entries.
AJE 1, accrued expense. Staff worked December 29 to 31, and that payroll of $2,500 is paid on January 2, 2027.
| Account | Debit | Credit |
|---|---|---|
| Wages expense | 2,500 | |
| Accrued wages | 2,500 |
AJE 2, prepaid expense. A 12-month insurance policy costing $6,000 was paid on July 1, 2026. Six months, or $3,000, have expired by year end.
| Account | Debit | Credit |
|---|---|---|
| Insurance expense | 3,000 | |
| Prepaid insurance | 3,000 |
AJE 3, depreciation. Equipment costing $40,000 is depreciated straight-line over five years with no salvage value, or $8,000 a year. The example method is illustrative, not a recommendation for any client.
| Account | Debit | Credit |
|---|---|---|
| Depreciation expense | 8,000 | |
| Accumulated depreciation | 8,000 |
AJE 4, deferred revenue. A client paid a $9,000 retainer on November 1, 2026 for three months of work at $3,000 a month. November and December, $6,000, are earned by year end.
| Account | Debit | Credit |
|---|---|---|
| Deferred revenue | 6,000 | |
| Service revenue | 6,000 |
The four entries flow into the trial balance like this:
| Account | Unadjusted Dr | Unadjusted Cr | Adjustment Dr | Adjustment Cr | Adjusted Dr | Adjusted Cr |
|---|---|---|---|---|---|---|
| Cash | 30,000 | 30,000 | ||||
| Accounts receivable | 12,000 | 12,000 | ||||
| Prepaid insurance | 6,000 | 3,000 | 3,000 | |||
| Equipment | 40,000 | 40,000 | ||||
| Accumulated depreciation | 8,000 | 8,000 | 16,000 | |||
| Accounts payable | 4,000 | 4,000 | ||||
| Accrued wages | 0 | 2,500 | 2,500 | |||
| Deferred revenue | 9,000 | 6,000 | 3,000 | |||
| Retained earnings | 20,000 | 20,000 | ||||
| Service revenue | 120,000 | 6,000 | 126,000 | |||
| Wages expense | 60,000 | 2,500 | 62,500 | |||
| Insurance expense | 0 | 3,000 | 3,000 | |||
| Depreciation expense | 0 | 8,000 | 8,000 | |||
| Rent expense | 13,000 | 13,000 | ||||
| Total | 161,000 | 161,000 | 19,500 | 19,500 | 171,500 | 171,500 |
Net income moves from $47,000 unadjusted ($120,000 less $73,000 of expenses) to $39,500 adjusted ($126,000 less $86,500). The $7,500 drop is $13,500 of added expense ($2,500, $3,000 and $8,000) less the $6,000 of revenue added.
Which adjusting journal entries come up every year end?
Most year-end adjusting journal entries fall into a handful of families: accrued expenses, accrued revenue, prepaid expenses, deferred revenue, depreciation and payroll cutoff. Each one fixes a timing gap between when cash moved and when the income or expense belongs. A firm that checks each family for every client catches most of the entries a set of books needs.
Accrued expenses. Costs incurred before year end but billed or paid after it: utilities for December billed in January, interest on a loan through December 31, professional fees for December work. The test is the January payables and bank activity. AJE 1 in the example above is one.
Accrued revenue. Work done before year end and invoiced after it. This matters for accrual-basis clients who invoice in arrears.
Prepaid expenses. Payments made in advance for coverage that runs past year end, such as insurance, software subscriptions and rent paid early. The adjustment expenses the used part and leaves the rest as an asset, as AJE 2 does.
Deferred revenue. Cash received before the work is done: retainers, deposits, annual subscriptions. The adjustment recognizes the earned part, as AJE 4 does.
Depreciation and amortization. The year's charge on fixed assets and intangibles. Clients rarely book it during the year, so it is often the largest single adjustment. AJE 3 is the example.
Payroll cutoff. Wages, payroll taxes and benefits earned in the last pay period of the year but paid in the first one of the next. When a pay period straddles December 31, only the December days belong in the old year.
Two other kinds show up often enough to plan for: reclassifications, such as a loan principal payment the client booked as an expense, and corrections found while tying balances to statements. Tying the year-end bank balance is its own job, covered in the post on year-end bank reconciliation. A cash difference found there often becomes an adjusting entry.
Keeping an adjusting journal entry log in Excel
An adjusting journal entry log in Excel is a general journal: one row per line of each entry, numbered and dated, with debits and credits in separate columns. In a fixed layout, one sheet records what changed, feeds the trial balance's adjustment column, and becomes the list the client posts.
A layout that works for the Example Design Studio entries:
| Column | Contents | Example (fictional) |
|---|---|---|
| A, AJE no. | Entry number, repeated on every line of the entry | AJE 2 |
| B, Date | Usually the period end date | 12/31/2026 |
| C, Account no. | The client's own account number | 1400 |
| D, Account name | As it appears in the client's chart of accounts | Prepaid insurance |
| E, Debit | Debit amount, blank if a credit | |
| F, Credit | Credit amount, blank if a debit | 3,000 |
| G, Description | One plain sentence a bookkeeper can follow | Expire 6 of 12 months of 2026 policy |
| H, Support | Workpaper reference or document name | Insurance invoice, policy 2026 |
| I, Reverse? | Y if the entry reverses on the first day of next year | N |
| J, Posted by client | Date the client confirmed posting | 1/15/2027 |
Two formulas keep the log honest. Below the data, total columns E and F; they must match. Then add a check per entry: Microsoft's SUMIFS function reference gives the syntax, and a formula such as =SUMIFS(E:E,A:A,"AJE 2")-SUMIFS(F:F,A:A,"AJE 2") should return zero for each entry number.
The same function feeds the trial balance. On the trial balance tab, the adjustment debit for an account can be =SUMIFS(Log!E:E,Log!C:C,A5), where A5 holds the account number, and the credit uses column F. Adding a line to the log then updates the adjusted column with no retyping. Building the balance sheet from that adjusted column is covered in the post on turning a trial balance into a balance sheet in Excel.
Use the client's account numbers and names exactly. A log that says "Insurance" when the client's chart says "Prepaid Insurance - Hartwell Mutual" will be posted to the wrong account by someone in a hurry.
Firms working inside the client's software can record the entries there instead. QuickBooks Desktop has an Adjusting Entry checkbox on general journal entries in its accountant edition, according to a QuickBooks Team reply in Intuit's thread on adjusting journal entries in Desktop; posting adjusting entries from the QuickBooks working trial balance walks through it. In QuickBooks Online Accountant, Intuit's article on making adjusting journal entries in QuickBooks Online Accountant describes the "Is Adjusting Journal Entry?" checkbox and the Adjusted Trial Balance report, which shows balances before and after the entries.
Adjusting journal entries the client never posts
Adjusting journal entries the client never posts leave the client's books and the firm's figures out of step. The firm's adjusted trial balance says one thing; the client's software says another. The first sign usually comes a year later, when the client's opening balances do not match the firm's prior-year adjusted ending balances.
Take Example Design Studio. If the client never posts AJE 3, its books show accumulated depreciation of $8,000 at the start of 2027 instead of $16,000, and retained earnings $8,000 too high. When the firm prepares 2027, depreciation for 2027 would be booked on top of a balance that is already missing a year. The 2026 statements and the 2027 opening figures disagree.
The same gap shows up as a balance sheet that does not tie. The post on why a balance sheet does not tie to the trial balance covers how to trace that kind of difference.
Three habits keep the books aligned:
- Send the log, not a summary. The client or its bookkeeper posts from the exact account numbers and amounts in the log, dated at the period end.
- Ask for confirmation. Column J in the log records when the client says the entries are in. An empty cell is a follow-up item.
- Check next year's opening balances first. Before any new work, compare the client's opening trial balance for the new year with the firm's prior-year adjusted balances. Every balance sheet account should match. A difference in retained earnings equal to the net effect of the adjustments points straight at unposted entries.
When a client sends its year-end ledger or trial balance as a PDF rather than giving access to the books, the comparison starts with getting those numbers into a sheet. Schema CPA reads the general ledgers and trial balances clients send and exports them to Excel or CSV; the document types it handles are listed on the homepage.
Which adjusting journal entries should reverse next year?
Reversing entries are mirror images of selected adjusting entries, dated the first day of the next year. They suit accruals that the client will settle with a normal transaction early in the new year, such as accrued wages, accrued utilities and accrued interest. Depreciation, expired prepaids and earned deferred revenue usually do not reverse.
The reason is the client's routine bookkeeping. When the January 2, 2027 payroll runs, the client's software will book the whole $2,500 to wages expense, as it does every pay period. Without a reversal, 2027 would carry $2,500 of wages that the firm already put in 2026, and expenses would be counted twice across the two years.
The reversal for AJE 1, dated January 1, 2027:
| Account | Debit | Credit |
|---|---|---|
| Accrued wages | 2,500 | |
| Wages expense | 2,500 |
On January 1, the accrued wages liability goes to zero and wages expense starts the year with a $2,500 credit. On January 2, the payroll debits $2,500 to wages expense. The net for the new year is zero, which is right, because that payroll was 2026 cost.
Effects on the opening trial balance for 2027:
- Balance sheet accounts open at the adjusted 2026 balances, then the reversal moves accrued wages from a $2,500 credit to zero on January 1.
- Income and expense accounts open at zero, because 2026 profit has closed to retained earnings. The reversal then puts a temporary credit in wages expense until the payroll posts.
- Entries that do not reverse, such as AJE 3, simply become part of the opening balances.
The decision rests on how the client will record the settling transaction. If the client books January's bill against the liability rather than to expense, a reversal would double the correction. Mark each entry's choice in the log's Reverse? column so the client, and next year's preparer, knows which entries to reverse.