COMM 1101 Chapter Notes -Deferred Income, Matching Principle, Accounting
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COMM 1101 Full Course Notes
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Document Summary
Question 2: companies prepare adjusting journal entries in order to accurately represent their true revenues, expenses, and account balances for the period in accordance with the canadian. If this is not done, a company or its investors will be unable to make accurate decisions based on the statements. An example of this is with deferred revenue accounts. If adjustments for these accounts are not made then revenues will not match the period in which they are earned, violating the revenue recognition principle. Along with that, this would cause the company to have an inflated net income for the current period followed by a decreased net income for the next period. The same could be seen with accrued expenses, if these are not recorded in the period in which they were used to generate revenue the matching principle would be violated.
