The good news about adjusting accounts is that if you make a mistake, it’s correctable. The bad news is that you have to make sure that when you make an adjustment you do so with balanced entries so that you don’t throw off your entire accounting system and have to spend hours or sometimes days to figure out where the error occurred.

The most common type of adjustment is one to depreciate assets. Another common adjustment is to spread out a lump-sum payment over several months. For example, if you pay for annual insurance all at once at the beginning of the year, you need to account for that expense on a monthly basis. If you listed the payment for a major insurance policy as an expense in one month, your business would look as though it’s operating at a loss, and the ledger wouldn’t provide a true picture of your monthly costs of running that business.

Another reason to adjust accounts could be, for example, moving items you have been recording as an expense in a miscellaneous category to an individual account for that expense to better track the related costs. In this situation, you would want to add a new account, subtract the expenses from the old location, and add them to the new account. You also may want to eliminate an account that you no longer need.