Question

importance of Adjusting entries:

What do they do?

How do they effect tax return?

Answer 1

Adjusting entries are journal entries made to properly recognize revenue and expenditure.

Adjusting entries are made for deferred revenue, deferred expense, accrued revenue and accrued expense.

Adjusting entries are important for accurate presentation of financial statements. They are done to record revenue and expense in the proper time to avoid misrepresentation of financial statements.

In the case of tax payments which are accrued expenses, when not recorded would show higher net income. Therefore, adjusting entries for accrued tax expense have to be made for accurate depiction of financial statements.