Which of the following are the two main types of adjusting entries?

The two main types of adjusting entries are accruals and deferrals.

Accruals refer to revenues that are earned but not yet received in cash, or expenses that are incurred but not yet paid. These entries are necessary to ensure that the financial statements reflect all financial activity during the accounting period, regardless of when cash is exchanged. For example, if a company provides a service in December but doesn’t receive payment until January, an accrual entry is required to recognize that revenue in December.

Deferrals, on the other hand, are adjustments for amounts that have been received or paid but not yet recognized as revenue or expenses. This typically includes prepaid expenses and unearned revenues. For instance, if a company pays for a one-year insurance policy in advance, a deferral entry is made to allocate the expense over each month of coverage rather than recognizing the full payment as an expense immediately.

Understanding the distinction and purpose of these two categories ensures accurate financial reporting and compliance with accounting principles, providing a clearer picture of a company's financial performance and position at any given time.