Accounting adjustments bring an asset or liability account balance to its correct amount and update related expense or revenue accounts

Accounting adjustments bring an asset or liability account balance to its correct amount and update related expense or revenue accounts. Every adjusting entry affects one or more income statement and balance sheet accounts. An adjusting entry never affect cash. Adjustments are necessary for transactions that extend over more than one period. An adjusted trial balance is a list of accounts and balances prepared after adjusting entries are recorded and posted to the ledger. Financial statements are often prepared from the adjusted trial balance. We can prepare financial statements directly from the adjusted trial balance that includes all account balances. Revenue and expense balances are transferred to the income statement of changes in equity. Asset liability, and equity balances are transferred to the balance sheet. We usually prepare statements in the following order; income statement, statement of changes in equity, and balance sheet.