Adjustments for Financial Reporting

This chapter dives deeper into the importance of making proper adjustments so that the financial statements reflect the current condition of the organization. One of the main principles of accounting is accurate and honest presentation of the financial condition of an organization. Without the proper posting of adjustments and correcting entries, the financial statements will be incorrect. Accounting is typically done within a specified period so that end users can assess the performance of a business entity. This section also discusses accounting periods, fiscal years, calendar years, adjusting entries, the matching principle, and the two classes and four types of adjusting entries.

Learning objectives

  • Describe the basic characteristics of the cash basis and the accrual basis of accounting.
  • Identify the reasons why adjusting entries must be made.
  • Identify the classes and types of adjusting entries.
  • Prepare adjusting entries.
  • Determine the effects of failing to prepare adjusting entries.
  • Analyze and use the financial results and trend percentages.

Source: Textbook Equity,
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