Question

Why do some accounts need to be adjusted before the Financial Statements are prepared?

Answer 1

Answer

Financial events take place throughout the year. As indicated, journal entries are recorded with the individual debits and credits then entered into the accounts. However, not all changes in a entity's accounts occur as a result of physical events. Balances frequently increase or decrease simply because of the passage of time or the impact is so gradual that producing individual journal entries is not reasonable.

To know True and fair view of account.

For example, salary is earned by employees every day but payment is not usually made until the end of the week or month. Other expenses, such as utilities, rent, and interest, are incurred over time. Unless an accounting system is programmed to record tiny incremental changes, the financial effects are not captured as they occur.