Adjusting entries are needed to correctly measure the

Image for Adjusting entries are needed to correctly measure the ________ A. net income (loss) on the income statement

Answer

General guidance

Concepts and reason
Accounting: Accounting is the process of recording the transactions, classifying it in the specific manner and further summarizing and analyzing is done after which the results are interpreted. Financial statements and ledger accounts are prepared in order to accomplish the procedure. Accounting Principles: Practices that create uniformity to record, prepare and present financial statements are accounting principles. Any entity that has business and is using accounting and book-keeping to maintain the records of the transactions should create or adopt any system. Adjusting entry: Adjusting entries are prepared after preparing the trial balance during the end of the year. Accrual base of accounting is succeeded by the accounts of a company. Thus, the ending balances are altered. It reports the company’s financial position in an exact manner.

Fundamentals

Journal entries: It is the important part of accountancy. A journal entry consists of recording which is either a debit or credit. The total of both debit and credit must be equal. Net income: The net income is the excess of total revenues over total expenses after adjusting for depreciation and taxes. Income statement: Income statement is prepared to find out the net operating income during the period. Balance sheet: Balance sheet refers to a statement of assets, liabilities and owner’s equity as on a particular date of the fiscal year of the business enterprise. It also depicts the financial status of a business enterprise in a nutshell.

Step-by-step

Step 1 of 2

Adjusting entries are made in order to record that part of information which the trial balance cannot reflect. If adjusting entries are omitted then there would be several wrongfully accounted accounts. Correct information would not be communicated through the statements and wrongful interpretations would not let the stakeholders’ to take an informed decision.

The adjusting entries are prepared at the end of the current accounting period. The purpose of adjusting entries after trial balance is created to adjust the revenues and the expenses in the period of accounting in which they have occurred. Because of the accrual principle of accounting the transaction may not be necessarily realized when the transaction takes place. Adjusting entries’ purpose is to record the transaction when it is happening instead of when realized. Also, the records have to reflect what has happened in the given accouting period. Such entries are required to be recorded as the transactions that have to be recorded when they occur to reflect the correct accounting information. Trial balance may not have all the information that is required by the final user of statements. The information has to be presented in order to let the stakeholders’ informed decision as well. This information could be omitted or some other information might put some more light on the resulted statement of affairs.

Step 2 of 2

Identify the correct measure for adjusting entries: Adjusting entries are made for accrued revenues, accrued expenses, unearned revenues, prepaid expenses and depreciation. Adjusting entries are needed to correctly measure the net income (loss) on the income statement. As the accrued expenses, depreciation, unearned revenues would not have been recorded in the statement of affairs. These adjustments are required to have the statements to provide correct and updated information. Even if the adjusting entries nullify the effect and there is no impact on net profit the correct information has to be produced as the information would be relevant for some other reflections. Hence, the adjusting entries are needed to correctly measure the net income (loss) on the income statement.

The adjusting entries are needed to correctly measure the net income (loss) on the income statement.


A. Net income (loss) on the income statement is the correct option because adjusting entries reflect the correct net income in the income statement after being adjusted. B. Ending balance in the cash account is the incorrect option because to adjust cash account statement of cash flow is prepared not by the adjusting entries. C. Net income (loss) on the balance sheet is the incorrect option because adjusting entries reflect the correct net income in the income statement after being adjusted.

D. Beginning balance in the cash account is the incorrect option because to adjust cash account statement of cash flow is prepared not by the adjusting entries.

Answer

The adjusting entries are needed to correctly measure the net income (loss) on the income statement.

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