Many of the business transactions affect the net income of more than one accounting period.In order to reflect the realistic net income of a business based on the accrual-basis accounting，all revenues earned and all expenses incurred during the same period must be reported regardless whether cash relating to revenues or expenses is received or paid in accordance with the realization principle and the matching principle.Therefore，it is often necessary to adjust some account balances at the end of each accounting period to achieve a proper matching of costs and expenses with revenues.

The adjusting entries occur after the journals have been posted，but before financial statements are prepared.Adjusting entries consist of four types:

1.Apportioning Recorded Costs

Many business outlays，such as purchases of buildings，equipment，are made to benefit a number of accounting periods.At the end of each accounting period，an adjusting entry is made to record the portion of the outlay that has expired during the period or that has benefited the period.

Example 1.Assume that a business paid a$3，600 on January 1 for one year's rent in advance.The journal entry on January 1 would be:

At the end of January 31，$300 had expired or been used up during the period.Therefore，an adjustment to apportion the recorded costs would be:

2.Apportioning Recorded Revenue

Just as some assets are acquired and then expire over time，some revenue is received in advance and earned over time.In the period in which such revenue is rendered，an adjusting entry is made to record the portion of the revenue earned during the period.

Example 2.Assume a monthly magazine publisher collected in advance $4，800 from customers for 6 months fees on July 1.The journal entry on that day would be:

At the end of July 31，1/6 of the publisher's obligationis fulfilled after magazines are supplied to the subscribers.The adjusting entry would be:

3.Accruing Unrecorded Expenses

An expense may be incurred in the current accounting period even though no bill has yet been received and payment will not occur until a future period.We should record such expense at the end of each period.

Example 3.Suppose AJ Corporation borrowed$100，000 on January 31，2009.The loan is for one year with interest at 9%.Interest for one year is$9，000 ($100，000×0.09×1).As of January 31，2010，the corporation has had the benefit of the loan for one month and it owes$750($9，000/12)with the bank.The adjusting entry would be made on January 31 as follows:

4.Accruing Unrecorded Revenue

Sometimes a company provides services during a period that are neither billed nor paid for by the end of the period.Such unrecorded revenue is recorded by making an adjusting entry at the end of the period.

Example 4.Suppose DR Service Company has completed 2/3 of service work on May 1.The total amount to be received will be$6，000 when the work is completed.On May 31，the adjusting entry to record the earned service revenue would be: