Question

Describe the effect on the financial statements when an adjustment is prepared that records (a) unrecorded revenue and (b) unrecorded expense. On the basis of what you have learned about adjustments, why do you think that adjusting entries are made on the last day of the accounting period rather than at several times during the accounting period?

Answer 1

Effect on financial statements when adjusment is prepared

a)Unrecoreded Revenue-It will have a effect on Revenue,Net Income,Asset and Equity these balance before adjustment entry was understated but after recording adjustment entry these account will be corrected.

b)-Unrecoreded Expense-It will have a effect on Expenses and Liabilities which was the Understated and Net Income and Equity which was Overstated before the adjustment entry but it will corrected after adjustment entry,

we make adjustment entries on last day of the accounting period instead of several time during the accounting period because the purpose of adjustment entries is to follow accural concept, so that at the end of accounting period,some income and expenses which may have not been recoreded ,taken up or updated can be corrected by adjustment entries and to see these missing information we need a trail balance which is prepared at the end of accounting period on which we incorporate our adjustments and make it adjusted trail balance.