Generally, what is the primary impact of an adjusting journal entry?

The primary impact of an adjusting journal entry is that it affects both the income statement and the balance sheet. Adjusting entries are made at the end of an accounting period to ensure that revenues and expenses are recognized in the period in which they occur, in accordance with the accrual basis of accounting.

When an adjusting entry is made, it typically involves either recognizing accrued revenues or expenses that have not yet been recorded or deferring revenues or expenses that have already been received or paid, affecting the current period’s income statement. For instance, when an expense is accrued, it increases the expense on the income statement while also creating a liability on the balance sheet. Conversely, when revenue is accrued, it increases income on the income statement while adding to assets on the balance sheet.

This dual impact ensures that financial statements accurately reflect the company’s financial position and performance for that period, which is essential for stakeholders needing reliable information for decision-making.