Why is it necessary to adjust the books? What will be an ideal ...

[wenmo]

Why is it necessary to adjust the books?
 
  What will be an ideal response?

Question 2

The Corbit Corp sold merchandise for 10,000 cash. The cost of the merchandise sold was 7,590 . The journal entries to record this transaction under the perpetual inventory system would be
 a. Cash 10,000
  Merchandise Inventory 10,000
  Cost of Merchandise Sold Sales 7,590
  7,590
  b. Cash
  Sales 10,000
  10,000
  Cost of Merchandise Sold Merchandise Inventory 7,590
  7,590
  c. Cash
  Sales 10,000
  10,000
  Cost of Merchandise Sold Merchandise Inventory 10,000
  10,000
  d. Cash
  Sales 7,590
  7,590
  Cost of Merchandise Sold 7,590 Merchandise Inventory 7,590

[Jbrasil]

Answer to Question 1

Adjusting the books is the process of bringing the accounts up to date at the end of an accounting period and before the financial statements are prepared. It is necessary because some account items change during the accounting period. For example, a company can purchase a six-month vehicle insurance policy. After one month, one month's insurance has been used up. This is an expense. An adjusting entry must be made in order to record the insurance expense and the reduction in the prepaid insurance (asset) account. Once this is done, the accounting records will accurately reflect the true picture of a company.

Answer to Question 2

b