Ans. ‘Adjustment Entries’ are required to be made, before preparing the financial statements
such as Trading, Profit and Loss Account and Balance Sheet. Financial statements are
made on the basis of trial balance. However, certain accounting adjustments do not find a
place in the trial balance. All expenses and incomes related to the year are to be fully
accounted for, before drawing the financial statements. There may be certain outstanding
expenses, payments made in advance, accrued income but not accounted for and income
received in advance etc. All these adjustments are to be made in the financial statements.
Then only, profit and loss account shows the factual operating results and balance sheet
shows the financial position in a proper way.
