Two Types Of Recording The Business

1. Accrual Accounting - Expenses are recorded when incurred and revenue is recorded when earned. Date of receipt or date of payment of cash does not determine the period in which revenue or expense shall be recorded under the accrual method of accounting.
2. Cash Accounting - Some small business use a cash basis for keeping their books. This means that expenses are recorded when paid and revenue is recorded when received.

Adjusting Entries - Are made to update ledger accounts at the end of a fiscal period. They are usually recorded first on the accountant's worksheet and later recorded in the journal

      Before closing the books for the period

• Any expenses have been recorded but not yet incurred.
• Any expenses were incurred but not yet recorded
• Any revenues have been recorded but were not yet earned (Unearned Revenue)
• Any revenues were earned but not yet recorded.

Note: If any of the above four conditions is found, you will make an adjusting entry to record (accrue) unrecognized revenues and expenses that belong in later periods. 

Adjusting Entries

1. Depreciation
2. Daily payroll accrual of salaries
3. Rental Income received but not yet earned
4. Supplies recognized as an expense that has not been used up.