ABSTRACT
This ‘‘tidying up’’ of accounts, which is really what the adjusting entries
represent, has to be completed prior to closing entries. In many cases, the
need for adjusting entries arises because the timing of cash flows (either
receipts or disbursements) does not coincide with the period in which it is
appropriate to recognise the revenue or expense. This distinction between the
timing of a cash flow and the timing of the recognition of a revenue or an
expense item stems from the accrual concept of accounting which holds that:
’ Revenue is recognised when it is earned and certain, rather than
simply when cash is received;
’ An expense is recognised in the period when the benefit derived from
the associated expenditure arises.
