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Question -

Why is it necessary to record the adjusting entries in the preparation of final accounts?



Answer -

Recording adjusting entries in preparing final accounts is necessary because of the following reasons:

  1. It helps in assessing whether the final accounts reflect true profit or loss, it also shows true financial position of a business.
  2. It ensures accounts comply with the accrual basis of accounting.
  3. It makes sure that all financial transaction belong to current fiscal year. No transaction of past or future are taken into account.
  4. It provides the scope for introducing different provisions which can be made at year end, only after assessing the whole year’s performance.

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