Respond to the following in a minimum of 175 words: The existence of financial statements is one of the primary reasons accountants do what they do. Before financial statements can be prepared, certain adjustments to account balances must be made. Knowing why adjustments are made allows you to consider what adjustments must be made. It is the end of the quarter for your business, and you and your business partner would like to prepare financial statements. Before creating the statements, you need to make some adjustments for some transactions that have started but are not yet finished. What are some examples of transactions that may have started during the period but have not finished by the end of the period? As the manager of a business, why is it important to make sure that adjusting entries are made? What would be the effect on the financial statements if adjusting entries were not made?

In the business world, several transactions may have started during a period but remain unfinished by the end of the quarter. Some examples include:

1. **Prepaid Expenses:** If a business pays for an expense in advance, like insurance or rent, a portion of that payment represents a future expense. This amount needs to be recognized as an expense over the period it covers.

2. **Accrued Revenues or Expenses:** Revenues or expenses that have been earned or incurred but not yet recorded can require adjustments. For example, a service provided in December but not yet billed or paid by the customer.

3. **Depreciation:** The cost of long-term assets, like machinery or buildings, needs to be allocated over their useful lives. Depreciation adjustments ensure that the expense is recognized accurately.

4. **Unearned Revenue:** If a customer pays in advance for services or goods not yet delivered, that payment is considered unearned revenue until the service is provided or the product is delivered.

5. **Bad Debts:** An estimate for uncollectible accounts can be necessary, especially if some customers are unlikely to pay their bills.

Making adjusting entries is crucial for several reasons:

1. **Accuracy:** Adjustments ensure that the financial statements reflect the business's true financial position and performance for the period.

2. **Consistency:** Proper adjustments maintain consistency in accounting practices, making it easier to compare financial statements across periods.

3. **Compliance:** Accurate financial reporting is essential for regulatory compliance and to meet the expectations of stakeholders, including investors, creditors, and tax authorities.

If adjusting entries were not made:

1. **Misleading Financial Statements:** Without adjustments, the financial statements would not accurately represent the business's financial position and performance, leading to potential misinterpretations.

2. **Inaccurate Profit Calculation:** The net income would be incorrect, affecting the calculation of profitability and potentially misleading stakeholders.

3. **Non-Compliance:** Failure to make necessary adjustments could result in non-compliance with accounting standards, leading to penalties and damaging the business's reputation.

In conclusion, as a business manager, ensuring that adjusting entries are made is essential for accurate financial reporting, maintaining consistency, and compliance with accounting standards. Neglecting to make these adjustments can lead to inaccurate financial statements, misinformed decision-making, and potential regulatory issues.