Answer to Question #97660 in Accounting for Jane Lee

Question

How would you describe period- end adjustments and which aspects of the business activity can be highlighted in it? Provide examples.

Answer 1

End-of-period-adjustments in accounting are journal entries made to the accounts of a business prior to the preparation and distribution of the financial statements for a given accounting period. End-of-period adjustments ensure that the these financial statements reflect the true financial position and performance of a business by allocating to the appropriate period the income earned and expenses incurred.

End-of-period adjustments become necessary in accounting to two key areas:

1) the different time impacts of the accounting period and multiperiod financial transaction (For example, a 12-month magazine subscription that benefits the business over 12 different monthly accounting periods)

2) the need to make adjustments to the accounts to better reflect asset realities (For example, to adjust the inventory amount in the accounts to reflect the value of an actual stocktake done at the end-of period.)