Every adjusting entry affects an account on the income statement and an account on the balance sheet.

Question

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Adjusting entries are made in the accounting records at the end of an accounting period to allocate income and expenses to the period in which they actually occurred. The purpose is to ensure that the revenue recognition and matching principles are followed. Each adjusting entry typically affects one income statement account (revenue or expense) and one balance sheet account (asset or liability), thereby updating the accounts for the correct period and ensuring that the income statement reflects the revenues earned and expenses incurred during the period, and the balance sheet reflects the correct assets, liabilities, and equity at the period end.

Every Adjusting Entry Affects an Account on the Income Statement