Adjusting entries are journal entries made at the end of an accounting period to update account balances before preparing financial statements.

Simple Meaning:

They are entries made to record income and expenses in the correct accounting period.

Why They Are Needed:

Because under the accrual accounting system, income and expenses must be recorded when they are earned or incurred — not when cash is received or paid.

Common Types:

Outstanding (accrued) expenses

Accrued income

Prepaid expenses

Unearned income

Depreciation

Example:

If salary for March is unpaid at year-end, an adjusting entry is made to record it as an expense.

In short, adjusting entries ensure accurate profit and correct financial statements.