Why Are Adjusting And Closing Entries Necessary
Adjusting Entries are necessary because Deferrals And Accruals need Adjustments in order to update the information of these Types of Accounts according to the Accrual basis of Accounting and Matching Concept . All the Revenues of Current Period must be matched with all of those Expenses incurred in earning these revenues. For Example Accrued Salaries must be matched with the Sales made by the employees during the current accounting period otherwise true and fair view of accounting information can not be presented to the Users of Financial Statements . Similarly Closing Entries are necessary in order to close Temporary Accounts (Revenues & Expenses, Gains & Losses). Only temporary accounts need to close in order to find N et Income for the period.