Respond To The Following In A Minimum Of 175 Words 959885

Respond To The Following In A Minimum Of 175 Words the Existence Of Fi

Respond to the following in a minimum of 175 words: The existence of financial statements is one of the primary reasons accountants do what they do. Before financial statements can be prepared, certain adjustments to account balances must be made. Knowing why adjustments are made allows you to consider what adjustments must be made. It is the end of the quarter for your business, and you and your business partner would like to prepare financial statements. Before creating the statements, you need to make some adjustments for some transactions that have started but are not yet finished.

What are some examples of transactions that may have started during the period but have not finished by the end of the period? As the manager of a business, why is it important to make sure that adjusting entries are made? What would be the effect on the financial statements if adjusting entries were not made?

Paper For Above instruction

Financial statements serve as vital tools that provide stakeholders with an accurate snapshot of a company's financial health. The process of preparing these statements necessitates making various adjusting entries to ensure that financial data accurately reflects the company’s economic activities during a specific period. As the end of a financial period approaches, such as at quarter’s end, it is crucial to recognize transactions that have begun but are not yet completed, in order to record their effects correctly.

Examples of transactions that may be initiated but not finalized by period-end include accrued revenues and expenses, prepaid expenses, and unearned revenues. Accrued revenues are revenues earned but not yet received or recorded, such as goods sold or services rendered that have not yet been invoiced or received payment. Conversely, accrued expenses are liabilities incurred but not yet paid or recorded, such as wages payable or interest expense accrued but not paid. Prepaid expenses involve payments made in advance, like insurance premiums or rent, which need to be allocated to the correct period. Unearned revenues are funds received before delivery of goods or services, requiring an adjustment to recognize revenue only when earned.

As a business manager, the importance of making accurate adjusting entries cannot be overstated. They ensure that financial statements reflect the true financial position and performance of the business during the reporting period. Proper adjustments prevent the overstatement or understatement of assets, liabilities, income, and expenses. If these adjustments are neglected, the financial statements could present a distorted view, leading to poor decision-making by management, investors, lenders, and other stakeholders. For example, failure to record accrued expenses would understate liabilities and expenses, overstate net income, and mislead users about the company's profitability and liquidity.

Without appropriate adjustments, financial statements become unreliable, which can have significant repercussions. Investors might make misguided investment decisions, creditors might extend credit based on inaccurate financial health, and management could make strategic errors. Moreover, neglecting adjustments can lead to non-compliance with accounting standards and legal requirements, risking penalties and loss of credibility. Therefore, accurate and timely adjustments are indispensable in preparing truthful and useful financial reports, thereby underpinning effective business management and stakeholder trust.

References

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2. Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2019). Financial Statement Analysis (12th ed.). Pearson.

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4. Williams, J. R., & Haka, S. F. (2021). Financial & Managerial Accounting. McGraw-Hill Education.

5. Accounting Coach. (2023). Adjusting Entries. https://www.accountingcoach.com

6. Financial Accounting Standards Board (FASB). (2022). Accounting Standards Codification. FASB.

7. Warren, C. S., Reeve, J. M., & Fess, P. E. (2019). Financial & Managerial Accounting. Cengage Learning.

8. U.S. Securities and Exchange Commission (SEC). (2021). Regulations and Financial Reporting. https://www.sec.gov

9. Institute of Management Accountants (IMA). (2021). Statement on Management Accounting. IMA.

10. Mensch, G. (2020). The Importance of Accurate Financial Reporting. Journal of Business & Finance.