The main reason for making adjustment is that they help to furnish accounting information that is useful to decision makers. Adjusting entries are needed to measure income and financial position in a relevant and useful way. Adjustments provide management the true status of earning in an accounting period and correct financial position at the end of the accounting period.
Another important reason for the use of adjusting entries is that they allow financial statements to be compared from one period to the next. It helps management to judge whether the company is making progress in earning revenues or profits or if the company has improved its financial position. Without adjustments the correct financial picture cannot be available for those purposes. Adjusting entries are a means of implementing accrual accounting and thereby help in producing financial statements that are comparable from period to period relevant to the needs of users.
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