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Which adjusting journal entries from FAR should I know for AUD?

There is a correlation between the risks that are relevant for a particular transaction cycle and the adjusting entries that you should be familiar with.

For example, in the revenue cycle, the risk is that revenue is overstated, right? So you should be familiar with how to propose an adjusting entry to reverse the recognition of revenue (reduce revenue). This would be a debit to revenue, and the credit could be to deferred revenue (or other accounts).

For expenses, the risk is that expenses are understated? To address this risk, one of the key audit tests is the search for unrecorded liabilities. So think about what the adjusting entry would be to increase the relevant expense/liability account if you were to identify an unrecorded liability. This would be a debit to expense and credit to liability.

So if you understand the purpose of the adjusting entry, then it is all about knowing if a debit or credit would increase or decrease a particular account.

Here is list of 100+ journal entries from FAR that you should be familiar with for AUD. You can also refer to the overview on adjusting entries for additional help.


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