What is the purpose of adjusting entries at period end, and provide an example.

• A. To reconcile bank statements.
• B. To record only cash transactions.
• C. To update revenues and expenses to reflect accruals and prepayments; e.g., accrue salaries earned but not yet paid.
• D. To recognize dividends to shareholders.

Answer: (C)

Adjusting entries at period end are made to bring the books up to date under accrual accounting, so revenues and expenses are recognized in the period they relate to. This follows the matching principle, ensuring the income statement reflects what happened during the period and the balance sheet shows accurate asset and liability balances. A common example is accruing salaries earned but not yet paid: Debit Salaries Expense, Credit Salaries Payable. This records the expense in the period even though cash will be paid later. Bank reconciliation is a separate process, and adjusting entries focus on accruals and prepayments, not just cash transactions; recognizing dividends is a distribution, not an adjustment to align revenues and expenses with the period.