Ch03 — Adjusting entries

Month-end reality check (Jan 31, 2026)

At the end of January, Harborview Bike Repair does a quick month-end close. Cash transactions alone don’t capture what really happened during the period, so we add a few adjusting entries that match revenue/expenses to January.

The canonical adjustments in this chapter are small on purpose, but they mirror real bookkeeping decisions:

  • A001 (Supplies used): a quick count shows $150 of supplies were consumed during January.

  • A002 (Depreciation): one month of wear on equipment ($50).

  • A003 (Utilities accrued): the utility bill hasn’t been paid yet, but $75 was incurred.

  • A004 (Revenue accrued): $200 of service was earned but not yet billed/collected.

What you’ll learn

  • Explain why adjustments exist (accrual vs. cash)

  • Compute adjustment amounts in your spreadsheet

  • Export adjustments into adjustments.csv

  • Interpret trial_balance_adjusted.csv

Key accounting terms

  • Accrual accounting: record revenue when earned and expenses when incurred (not when cash moves).

  • Adjusting entry: an end-of-period entry that updates balances to match accrual reality. Adjustments often change an asset or liability and a revenue or expense.

  • Accrual vs deferral:

    • Accrued expense: expense happened, cash/payment is later (creates a liability).

    • Accrued revenue: revenue earned, cash/collection is later (creates an asset).

    • Prepaid expense: cash paid first, expense recognized later (asset → expense over time).

    • Unearned revenue: cash received first, revenue recognized later (liability → revenue over time).

  • Depreciation: allocating the cost of a long-lived asset over time (expense). Many systems use a separate contra-asset (Accumulated Depreciation), but this workbook keeps the chart of accounts small and credits Assets:Equipment directly.

What to do in your spreadsheet

  1. Start from your Chapter 2 unadjusted trial balance.

  2. Compute the adjustment amount(s) (example: supplies used, prepaid expiring, accrued revenue).

  3. Write the adjusting journal entry lines.

Export CSVs

Export:

  • inputs/<period>/transactions.csv (same as Ch02)

  • inputs/<period>/adjustments.csv (new for this chapter)

Run LedgerLoom

ledgerloom check --project .
ledgerloom build --project . --run-id ch03

What to look at

  • trial_balance_unadjusted.csv: before adjustments

  • trial_balance_adjusted.csv: after adjustments

Your spreadsheet’s adjusted trial balance should match LedgerLoom’s adjusted trial balance account-by-account (within rounding rules you control in the spreadsheet).

Compare against the answer key

If you want a known-good reference:

Common mistakes

  • Putting adjustments in transactions.csv instead of adjustments.csv

  • Using the wrong date (adjustments are typically period-end)

  • Adjusting the wrong account (asset vs expense)

  • Recording the right adjustment with the wrong sign

Downloads

Next chapter

Continue to Ch04 — Closing + post-close trial balance.