Importance of Adjusting Entries

Adjusting Entries are entries made at the end of the period to assign revenues to the period in which they are earned and expenses to the period in which they are incurred.

Many accounts need adjustments to reflect the current conditions as of time of reporting in order for the statements to be meaningful.  There may be financial data not previously recognize that need to be recorded to make the books of accounts up to date like expenses already incurred but no payment until some time in the subsequent period, and revenues already earned but no cash is collected.  Other transactions like prepayments of expenses may result to over statement of expenses if the unused portion is not adjusted.  

Adjusting entries, therefore, bring the assets, liabilities, revenue and expenses to their correct balances.

 Reference:

Fundamentals of Accounting P-1 (Accounting for service, Merchandising and Manufacturing)

By: Gloria Ardaniel Rante

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