Adjusting Entries: Why Period-End Matters — Financial Accounting

§ 01

Type	What It Adjusts	Example
Accrued revenue	Revenue earned but not yet billed	Interest earned on investments, unbilled consulting
Accrued expenses	Costs incurred but not yet paid	Wages payable, utility bills, interest expense
Deferred revenue	Cash received before earning	Annual software subscription paid upfront
Prepaid expenses	Cash paid before consuming	Insurance paid annually, consumed monthly

§ 02

Deferred revenue is a liability on the balance sheet. When a company receives payment before delivering service, it owes that service. As it delivers, deferred revenue converts to recognized revenue.

§ 03

Growing deferred revenue is a bullish signal. It means customers are prepaying for future service, which provides cash flow visibility and revenue predictability.

§ 04

At fiscal year-end (Dec 31), a company accrues $5M of salary expense that will actually be paid Jan 5. Why?

Five questions · AI feedback

Sit with the ideas.

A firm fails to record $3,400 of accrued wages at year-end. What is the impact on the financial statements?

Why:

Sit with the ideas.

Other lessons in this course.