Basically the adjusting entries ensure that revenues are recorded in the period in which they are earned and that expenses are recognized in the period in which they are incurred. Moreover, adjusting entries are essential for the following causes:
- To update the financial statements.
- To settle the accrued financial transactions.
- To settle the advanced financial transactions.
- To ensure the exact revenues.
- To ensure the exact expenses.
- To rectify any error.
- To adjust pre-payments and due-payments.
Adjusting entries update the financial statements of a business concern.