Preparing adjusting entries at the end of the financial year is necessary:
A) to prepare the ledger for the next accounting period.
B) to close the accounts.
C) to correct any errors made during the period.
D) to calculate the profit or loss as accurately as possible.

Question

Quizplus · Accepted Answer

The main purpose of preparing adjusting entries at the end of the financial year is to calculate the profit or loss as accurately as possible. These entries ensure that all revenue and expenses are properly recognized in the correct accounting period, allowing for an accurate calculation of net income or loss. While adjusting entries may also correct errors and prepare the ledger for the next accounting period, the primary reason for their preparation is to calculate the company's financial performance during the period just ended. Therefore, option D is the best choice.

Preparing Adjusting Entries at the End of the Financial Year