Question

Accruals and deferrals affect both expenses and revenues. What are some ways to avoid adjusting entries?

Answer 1

Adjusting entries are often sorted into two groups: accruals and deferrals.

Avoiding Adjusting Entries

If you want to minimize the number of adjusting journal entries, you could arrange for each period's expenses to be paid in the period in which they occur. For example, you could ask your bank to charge your company's checking account at the end of each month with the current month's interest on your company's loan from the bank. Under this arrangement December's interest expense will be paid in December, January's interest expense will be paid in January, etc. You simply record the interest payment and avoid the need for an adjusting entry. Similarly, your insurance company might automatically charge your company's checking account each month for the insurance expense that applies to just that one month.