What are adjusting entries?

what are adjusting entries

Adjusting journal entries, or AJEs, is an  accounting term you might have heard thrown around before and never quite understood. You may have even received AJEs from your tax accountant in the past, had no idea what to do with them, and ended up shoving them in a desk drawer or filing them away somewhere. 

But AJEs are incredibly important. So what exactly are they, why do they matter, and what do you need to do with them when you get them?

AJEs keep your accounting accurate 

AJEs are important for maintaining accurate accounting records. If AJEs have been done,your tax accountant has made adjustments after your year end reports have been created. Most tax accountants will include the AJEs with the copy of the tax return.

Common AJEs include entries for depreciation, accrued revenue and expenses, prepaid expenses, reclassifying transactions or out-of-the-ordinary expenses. 

But these adjustments can’t only be made on your tax return and then forgotten about. AJEs are a critical piece that can’t be overlooked.

AJEs must be incorporated into your bookkeeping records 

Either you or your tax accountant should send the AJEs to your bookkeeper so your bookkeeping records will agree with your tax return. If the AJEs are not entered in your books, you’ll undoubtedly face an issue when having your next year’s tax return prepared. There are many account balances that roll over from one year to the next on a tax return. You need the beginning balances of these accounts next year to match. 

This is why it’s crucial that you don’t shove your AJEs into a desk drawer once your tax accountant is done with them. We recommend you forward them to your bookkeeper as soon as possible. At a bare minimum, this should be done immediately after your tax return is complete. However, at Beyond we take things a step further by reconciling your bookkeeping records to your tax return before it’s filed. 

Sending your AJEs to us sooner can save you money

At Beyond we believe in being proactive rather than reactive. That’s why, when we can, we like to get copies of your draft tax return and corresponding AJEs before a return is filed. In many cases, our close relationships with CPAs and other tax professionals means they’ll send us the AJEs directly rather than making you the middleman. 

Whoever we receive them from, having a chance to reconcile your bookkeeping records to your tax return before it’s filed can be a huge money saver. If there are significant differences, we have time to make sure all your records are correct and that your tax return will be filed accurately. This way, you’re not paying any more in taxes than you need to be. With one of our clients, we were able to find an additional $70,000 of unclaimed deductions by doing this! 

As you can see, making small changes can be the difference in saving thousands of dollars. That’s why we’ve made a commitment at Beyond to go beyond your expectations of traditional bookkeeping. To learn more about the Beyond Way and how you can start a new chapter in your business’ story, click here.