AFC Accounting Fundamentals Practice Test – Complete Exam Prep

An adjusting entry is a journal entry made at the end of an accounting period to allocate income and expenses to the appropriate periods, ensuring that the financial statements are in accordance with the accrual basis of accounting. This process involves recognizing revenues earned and expenses incurred that have not yet been recorded in the financial statements for that period.

Writing off uncollectible accounts is indeed an adjusting entry because it involves recognizing that certain accounts receivable will likely not be collected, thus adjusting the accounts to reflect a more accurate financial position. This typically involves debiting an expense account (like Bad Debts Expense) and crediting accounts receivable, effectively reducing the amount of outstanding receivables reported on the balance sheet.

The other actions do not fit the definition of adjusting entries. Recording inventory purchases relates to the acquisition of assets and does not involve adjustments to existing records from prior periods. Transferring cash from one account to another is merely a movement of cash within the accounts and does not affect the overall financial position directly. Issuing a new stock certificate represents a transaction affecting equity but does not involve adjusting previously recorded amounts. Each of these actions serves different purposes within the accounting process and does not qualify as an adjustment for accrual accounting.