Final answer:
An adjusting entry is a change in a calculated amount that is included in current and future years' financial statements as a result of new information or subsequent developments and from better insight or improved judgment.
Step-by-step explanation:
The change in a calculated amount that is included in current and future years' financial statements as a result of new information or subsequent developments and from better insight or improved judgment is called an adjusting entry. Adjusting entries are made to ensure that financial statements accurately reflect the financial position and performance of a company. They involve updating accounts based on new information or correcting errors.
For example, let's say a company initially estimates its bad debt expense to be $10,000 for the year. However, during the year, they realize that the actual bad debts are higher than expected. To reflect this new information, they would make an adjusting entry to increase the bad debt expense and decrease the accounts receivable.
Adjusting entries are typically made at the end of an accounting period, before preparing financial statements. They are essential for accurate and reliable financial reporting.