Question

What are adjusting entries? Why are they necessary for preparing final accounts?

Answer 1

The adjusting entries are considered to be the entries which are made in the end of the accounting period to determine the true and the fair position of the business.

These are called as the adjusting entries as they are made out of the items in the trial balance.

The adjustments are made in the two places as per the adherence on the double-entry system if book keeping.

It is necessary to make the adjusting entries while preparing the final accounts as:

(i) It depicts the true and fair position and the performance of the business of the current year.

(ii) It eliminates the entries which were already made in the prior year or which have to be made in the forthcoming years.

(iii) In case of the omission of any entries while the process of recording, the adjusting entries for the same are passed in the end of the accounting period.

(iv) After going through all the accounts, provision is created in the year-end whenever necessary.