Question: Adjusting entries are used to update the ledger for any financial changes that have occurred gradually
over time and not recorded through a regular journal entry. What kinds of adjustments are normally needed before
financial statements are prepared?
Answer: A variety of adjusting entries will be examined throughout the remainder of this textbook. One of
the accountant’s primary responsibilities is the careful study of all financial information to ensure that it is all
fairly presented before being released. Such investigation can lead to the preparation of numerous adjusting
entries. “Why Must Financial Information Be Adjusted Prior to the Production of Financial
Statements?”, only the following four general types of adjustments are introduced. In later chapters, many
additional examples will be described and analyzed.
• Accrued expenses (also referred to as accrued liabilities)
• Prepaid expenses
• Accrued revenue
• Unearned revenue (also referred to as deferred revenue)
Usually, at the start of the adjustment process, the accountant prepares an updated trial balance to provide a visual,
organized representation of all ledger account balances. This listing aids the accountant in spotting figures that
might need adjusting in order to be fairly presented.