Adjustments are necessary to bring an asset or liability account to its proper amount and also update a related expense or revenue account.

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Adjustments are necessary to ensure that the account balances and financial statements accurately reflect the economic reality of a business. They typically involve recording accruals, prepayments, depreciation, allowances, and other non-cash items that have been incurred but not yet recorded in the books. By making these adjustments, companies can report their financial performance and position more accurately and fairly, which can enhance their credibility and transparency with stakeholders such as investors, lenders, customers, and regulators. Additionally, adjustments can help managers to identify inefficiencies or opportunities for improvement, mitigate risks, and make better-informed decisions based on timely and reliable data.

Adjustments Are Necessary to Bring an Asset or Liability Account