What is the difference between adjusting entries and correcting entries?
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
