Adjusting Journal Entry: Guide for Australian Businesses (2025)

Accounting may not always steal the limelight, but behind every healthy Australian business is a ledger that tells the real story. At the heart of this accuracy lies the adjusting journal entry (AJE)—a crucial, often-overlooked step in the month-end and year-end accounting process. As the Australian Tax Office (ATO) sharpens its focus on compliance and as digital accounting platforms continue to evolve in 2025, understanding AJEs is more important than ever.

Why Adjusting Journal Entries Matter in 2025

Adjusting journal entries are the mechanism accountants use to ensure that income and expenses are recorded in the right period, aligning with the accrual basis of accounting. With Australia’s continued adoption of e-invoicing and tighter real-time reporting standards introduced in late 2024, getting your books right before closing the period is critical—not just for compliance, but for informed business decisions.

• Revenue Recognition: New ATO guidance in 2025 stresses the importance of matching income with related expenses, especially for service businesses using milestone billing or subscription models.
• Expense Timing: Missed adjustments can overstate profits or trigger GST misreporting, both of which can attract ATO scrutiny.
• Audit Trails: The rise of digital audits means every adjustment must be transparent and justified, with clear documentation.

Common Types of Adjusting Journal Entries (with Real-World Examples)

Here’s how adjusting entries play out in typical Australian businesses in 2025:

1. Accrued Expenses

Example: An IT consulting firm receives a contractor invoice in July for work completed in June. To match costs to the right period, they record an accrued expense in June, then reverse it when the invoice arrives in July.

• Debit: Consulting Expense
• Credit: Accrued Liabilities

2. Prepaid Expenses

Example: A Sydney café pays 12 months’ rent upfront in January. Each month, an adjusting entry moves one-twelfth of the rent from the prepaid asset to rent expense, reflecting true monthly costs.

• Debit: Rent Expense
• Credit: Prepaid Rent

3. Unearned Revenue

Example: An online learning platform collects annual subscriptions in advance. At each month-end, a portion of the unearned revenue is recognised as earned income via an adjusting entry, in line with AASB 15 revenue recognition requirements.

• Debit: Unearned Revenue
• Credit: Subscription Revenue

4. Depreciation and Amortisation

With the temporary full expensing scheme phased out from July 2024, more businesses in 2025 are reverting to standard depreciation. Adjusting entries allocate asset costs over their useful lives, ensuring tax and reporting accuracy.

• Debit: Depreciation Expense
• Credit: Accumulated Depreciation

2025 Policy Updates: What’s New for Adjusting Entries?

Accounting standards and ATO compliance requirements aren’t static. Key changes impacting AJEs in 2025 include:

• Digital Record-Keeping Mandates: Businesses must retain digital documentation supporting each adjusting entry for at least five years, in line with expanded ATO audit powers.
• GST Timing Adjustments: New ATO guidance clarifies GST must be reported in the period when the underlying economic activity occurs, not simply when cash moves.
• Cloud Accounting Integrations: Platforms like Xero and MYOB are rolling out AI-powered suggestions for adjusting entries, reducing manual errors and audit risk.

Best Practices for Seamless Adjusting Entries

• Monthly Reviews: Don’t wait until June 30—review potential adjustments every month for smoother year-end closes.
• Documentation: Attach supporting evidence (invoices, contracts, schedules) to every entry in your accounting software.
• Leverage Automation: Use built-in rules and templates in your accounting platform to streamline recurring adjustments.
• Stay Current: Watch for ATO and AASB updates on revenue recognition, GST, and digital record-keeping to ensure ongoing compliance.

Conclusion

Adjusting journal entries are the glue that holds accurate Australian accounts together. With regulatory scrutiny on the rise and digital tools making compliance easier, there’s never been a better time to get your adjustments right. Whether you’re running a side hustle or managing a multi-entity group, mastering AJEs in 2025 means more reliable reporting and fewer compliance headaches down the track.