When this happens, the related revenue or expense must be accrued or recorded using adjusting entries. Chapter 4 covers the adjustment process that is used to record these adjusting entries. As you analyze transactions which require adjustments, note that every adjusting entry must include either a credit to a revenue account or debit to an expense account. This rule makes sense if you understand the purpose of adjusting entries. The adjustment process ensures that all revenues earned during the period and all expenses incurred to generate those revenues are recorded.
Financial statements are usually prepared after the adjusting entries have been recorded.
You will need to know how the financial statements relate to each other. This chapter concludes the coverage of the accounting cycle with the closing process. Try to understand the closing process in terms of the transaction analysis model. The McGraw-Hill Companies. All rights reserved.