What type of expenses do adjusting entries often deal with?

Adjusting entries are essential for ensuring that financial statements accurately reflect the company's financial position and performance according to the accrual basis of accounting. They primarily deal with accrued and deferred expenses because these two categories directly correspond to recording expenses that have either been incurred but not yet recorded (accrued) or expenses that have been paid but not yet incurred within the current accounting period (deferred).

Accrued expenses represent liabilities that arise when services or benefits have been received but not yet paid for by the end of the accounting period. This could include wages owed to employees or interest on loans that need to be recorded even if the cash has not been disbursed. On the other hand, deferred expenses, which might include prepaid insurance or rent, involve transactions where cash has been paid in advance for services or goods that will be used or consumed in future periods. Adjusting entries for these expenses ensure that the expenses are recognized in the period in which they are incurred, aligning properly with the matching principle of accounting.

By adjusting for both accrued and deferred expenses, companies can present accurate financial statements that reflect their true financial status and operations for the period. The focus on these types of expenses is crucial since they bridge the gap between cash flows and the actual expenses that