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Adjustment Entries are Journal entries (Non Cash Entries)recorded at the end of an accounting period to alter the ending balances. Ex. Depreciation..It is calculated on annual basis, recorded at the end of accounting period.
Closing entries are made at the end of accounting period to clear out all the temporary accounts & transfer their balances to permanent account. Closing entries are based on account balances in an adjusted trail balance.
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 to be made before closure of books of accounts, whereas closing entries are made to closing the P&L and to transfer the balances to Balance Sheet.
ADJUSTING ENTRIES are made at the end of the accounting period but prior to preparing the financial statements in order for a company's accounting records and financial statements to be up-to-date on the accrual basis of accounting. For example, each day the company incurs wages expense but the payroll involving workers' wages for the last days of the month won't be entered in the accounting records until after the accounting period ends. Other adjusting entries involve amounts that the company paid prior to amounts becoming expenses. For examples, the company probably paid its insurance premiums for a six month period prior to the start of the six month period. The company may have deferred the expense by recording the amount in the asset account prepaid Insurance. During the accounting period some of those premiums expired (were used up) and need to appear as expense in the current accounting period and the asset balance reduced.CLOSING ENTRIES are dated as of the last day of the accounting period, but they are entered into the accounts after the financial statements are prepared. For the most part, closing entries involve the income statement accounts. The closing entries set the balances of all of the revenue accounts and the expense accounts to zero. This means that the revenue and expense accounts will start the new year with nothing in the accounts—allowing the company to easily report the new year revenues and expenses. The net amount of all of the balances from the revenue and expense accounts at the end of the year will end up in retained earnings (for corporations) or owners equity (for sole proprietorships). Thanks to accounting software, the closing entries are quite effortless.
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