Types of Adjusting Entries

Adjusting Entries can be broadly classified into following types:
1. Prepayments
If the company has made the payment for the services but the services are yet to be delivered in the next accounting period, then this transaction will be recorded under the heading prepaid expense in the current accounting period and will be treated as an asset.
If the company has received a payment against any services, which are to be provided by the company in the next accounting period, then this transaction will be recorded under the heading unearned income/ advance received and will be treated as a liability.
2. Accruals
If the company has incurred an expense and yet not paid for it, it will be treated as a liability. This means that the services have been availed but the payment is not yet made.
If the company has earned an income but yet not received money against the services provided by them, it will be treated as an asset. This means that the services have been provided but the amount is yet not received.
3. Estimates
Estimates are a type of adjusting entry where calculation of the exact amount of expense or revenue is not possible, so in this case an estimate is taken.