Why adjusting entries aren’t just a year-end formality — they’re the difference between numbers that look right and numbers that are right.
What Are Adjusting Entries?
Adjusting entries are journal entries made at the end of an accounting period, to allocate income and expenses to the period in which they actually occur, not just when cash moves. Under IFRS this is not optional. Without the adjusting entries, the financial statements may reflect incorrect profits or losses, which may mislead stakeholders and create compliance risk.
“Adjusting entries ensure that your financial statements reflect economic reality — not just cash movement.”
The Four Types
Every adjusting entry falls into one of four categories:
| Type | Description & Example |
| Accrued Expenses | Costs incurred but not yet paid or recorded. Example: salaries earned by employees but not yet disbursed at month-end. |
| Accrued Revenues | Income earned but not yet billed or received. Example: services rendered but invoice not yet issued to the client. |
| Deferred Expenses | Prepayments that must be spread over time. Example: a 12-month insurance premium paid upfront — only the consumed portion is an expense. |
| Deferred Revenues | Cash received before the service is delivered. Example: retainer fees paid in advance for future consulting work. |
A Quick Example
A company pays P24,000 for a 12-month insurance policy on 1 January. At 31 March, the quarter-end adjustment looks like this:
JOURNAL ENTRY — 31 MARCH
- Dr Insurance Expense: P6,000
- Cr Prepaid Insurance: P6,000
P24,000 ÷ 12 months × 3 months = P6,000 recognised as expense.
The remaining P18,000 stays on the balance sheet as a prepaid asset — it still represents future benefit.
Why It Matters
Skipping adjustments has real consequences:
- Financial statements misstate profits — too high or too low.
- Tax filings become inaccurate, creating compliance risk with BURS.
- Lenders, investors, and auditors won’t trust your numbers.
“Skipping adjustments doesn’t make problems disappear — it defers them, often at greater cost.”
Let Us Handle It
Andersen in Botswana is Botswana’s leading independent accounting, tax, and business support firm — with neighbourhoods in Francistown, Gaborone, Ghanzi, and Maun. Our team of over 40 professionals will ensure your financial statements are precise, IFRS-compliant, and audit-ready.
Whether you’re a growing SME or an established enterprise, let us handle your financial statements so you can focus on your business.
Contact us today for a consultation
