Generally, adjusting entries are required every accounting period so that a company's financial statements reflect the accrual method of accounting. It is typical for the adjusting entries to be dated as of the last day of the accounting period and to include an income statement account and a balance sheet account.
Adjusting entries are necessary to:
- accrue expenses and losses and the related liabilities
- accrue revenues and gains and the related assets
- defer expenses and the related assets
- defer revenues and the related liabilities
- record depreciation expense or bad debts expense and the change in the related contra asset account
A correcting entry is needed only if an error is discovered in an account. Correcting entries can involve any combination of income statement and balance sheet accounts.
Correcting entries are recorded if:
- an erroneous amount was used in a previously posted entry
- an entry was recorded in the wrong account