Why
is it necessary to record the adjusting entries in the preparation of
final accounts?
Why is it necessary to record the adjusting entries in the preparation of final accounts?
It
is extremely important to record the adjusting entries in the
preparation of final accounts.
1.
This is done in order to assess the true net profit or net loss of
the business organisation.
2.
It helps us record those adjustments which were left or omitted and
were not recorded in the accounts.
3.
It assists us to separate all the financial transactions into a
year-wise category. The financial statements include only those
entries which belong to the current year. It rules out the previous
and forthcoming years’ entries which are the basis for accrual
basis of accounting.
4.
Further, it provides us the room for making various provisions which
are made at the end of the year, after assessing the entire year’s
performance.
It is extremely important to record the adjusting entries in the preparation of final accounts.
1. This is done in order to assess the true net profit or net loss of the business organisation.
2. It helps us record those adjustments which were left or omitted and were not recorded in the accounts.
3. It assists us to separate all the financial transactions into a year-wise category. The financial statements include only those entries which belong to the current year. It rules out the previous and forthcoming years’ entries which are the basis for accrual basis of accounting.
4. Further, it provides us the room for making various provisions which are made at the end of the year, after assessing the entire year’s performance.
