Adjusting Journal Entry: Guide for Australian Businesses (2026)

An adjusting journal entry is a change made to your accounting records at the end of a reporting period. These entries ensure that your financial statements accurately reflect the business’s activities for that period, following the accrual basis of accounting. This means recognising income when it’s earned and expenses when they’re incurred, not just when cash changes hands.

Adjusting entries are typically made before finalising monthly, quarterly, or annual accounts. They help correct timing differences, allocate costs, and ensure that your financial statements are both accurate and compliant with Australian regulations.

The importance of AJEs has only grown as Australian businesses adapt to new digital tools and evolving compliance requirements. With the Australian Tax Office (ATO) focusing on accurate, timely reporting and many businesses adopting cloud-based accounting platforms, making the right adjustments is crucial for:

• Accurate Reporting: Ensuring your profit and loss statement and balance sheet reflect the true state of your business.
• Compliance: Meeting ATO requirements for income recognition, GST reporting, and record-keeping.
• Decision-Making: Providing reliable financial information to support business planning and management.

Adjusting entries address a range of scenarios where income or expenses need to be matched to the correct period. Here are some of the most common types Australian businesses encounter:

Accrued Expenses

These are costs that have been incurred but not yet recorded in your accounts because the invoice hasn’t arrived or payment hasn’t been made. For example, if your business receives services in June but the invoice comes in July, you would record an accrued expense in June to match the cost to the correct period.

Example Entry:

• Debit: Relevant Expense Account (e.g., Consulting Expense)
• Credit: Accrued Liabilities

Prepaid Expenses

Prepaid expenses occur when you pay for goods or services in advance. The cost is initially recorded as an asset and then gradually expensed over the period the benefit is received. For instance, if you pay a year’s rent upfront, you would move one-twelfth of the total from prepaid rent to rent expense each month.

Example Entry:

• Debit: Rent Expense
• Credit: Prepaid Rent

Unearned Revenue

If your business receives payment for goods or services before delivering them, this is recorded as unearned revenue (a liability). As you provide the goods or services, you recognise the revenue over time. For example, if you run a subscription service and receive annual payments upfront, you would recognise a portion of the revenue each month.

Example Entry:

• Debit: Unearned Revenue
• Credit: Revenue

Depreciation and Amortisation

Depreciation (for tangible assets) and amortisation (for intangible assets) spread the cost of an asset over its useful life. Adjusting entries are made periodically to allocate a portion of the asset’s cost as an expense, ensuring your accounts reflect the asset’s declining value.

Example Entry:

• Debit: Depreciation Expense
• Credit: Accumulated Depreciation

Australian businesses in 2026 face a few important developments that affect how adjusting entries are managed:

Digital Record-Keeping

The ATO expects businesses to maintain digital records supporting each adjusting entry. This includes invoices, contracts, and schedules. Digital documentation should be kept for at least five years, making it easier to respond to audits or compliance checks.

GST Reporting

GST must be reported in the period when the underlying economic activity occurs, not just when cash is received or paid. This means that adjusting entries may be needed to ensure GST is accounted for in the correct period, particularly for businesses using the accrual method.

Cloud Accounting Tools

Many accounting platforms now offer features to help identify and process adjusting entries. These tools can suggest potential adjustments, automate recurring entries, and help maintain a clear audit trail. While automation can reduce manual errors, it’s still important to review and approve all adjustments to ensure accuracy.

Making adjusting entries involves a few clear steps:

1. Review Your Accounts Regularly

Don’t wait until the end of the financial year. Conduct monthly or quarterly reviews to identify transactions that need adjustment. This can include checking for unpaid invoices, prepaid expenses, or revenue received in advance.

2. Gather Supporting Documentation

Attach relevant documents to each adjusting entry in your accounting software. This could be an invoice, contract, or calculation schedule. Good documentation supports compliance and makes future audits easier.

3. Record the Entry

Use your accounting software to create the adjusting entry. Clearly describe the reason for the adjustment and reference any supporting documents.

4. Review and Approve

If you have a team, ensure that adjusting entries are reviewed and approved by someone other than the person who created them. This helps maintain accuracy and accountability.

5. Monitor for Changes

Stay informed about updates to accounting standards, ATO guidance, and software features that may affect how you process adjusting entries.

• Regular Reviews: Schedule monthly reviews of your accounts to catch adjustments early and avoid a backlog at year-end. See more on finance best practices.
• Consistent Documentation: Always attach supporting evidence to each entry.
• Use Automation Wisely: Take advantage of rules and templates in your accounting software for recurring adjustments, but always double-check automated entries.
• Stay Informed: Keep up with changes in accounting standards and ATO requirements to ensure ongoing compliance.

• Missing Adjustments: Failing to record accrued expenses or unearned revenue can lead to misstated profits and compliance issues.
• Incorrect Timing: Recording income or expenses in the wrong period can distort your financial results and affect GST reporting.
• Poor Documentation: Lack of supporting evidence can cause problems during audits or reviews.
• Overreliance on Automation: Automated suggestions are helpful, but always review entries for accuracy and relevance to your business.

Adjusting journal entries are a fundamental part of accurate accounting for Australian businesses. As digital tools and compliance requirements evolve in 2026, taking the time to review and process these entries regularly will help you maintain reliable financial records and avoid compliance headaches. Whether you manage your accounts yourself or work with an accountant, understanding and applying adjusting entries is a practical step towards better business management.