Adjusting entries may increase or decrease balances in balance sheet accounts and income statement accounts.

Question

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Adjusting entries are made to correct errors or update accounts at the end of an accounting period. These entries can affect both balance sheet accounts (such as prepaid expenses, accrued liabilities, or depreciation) and income statement accounts (such as accrued revenue or expenses, unearned revenue, or depreciation expense). Adjusting entries are necessary to ensure that financial statements reflect accurate and up-to-date information.

Adjusting Entries May Increase or Decrease Balances in Balance Sheet