You are the new Senior Accountant for the Abbott Company, Inc. a closely held and successful family business. Mr. Mark Smith, Chief Financial Officer, has asked you to give a CPE presentation to the new staff accountants on the proper accounting treatment including the importance of using adjustment entries when preparing financial statements. It has come to your attention that Abbot Company, Inc has been issuing quarterly statements without using any adjustment entries whatsoever; the prior Senior Accountant simply copied the appropriate account balance from the Trial Balance into the interim financial statements.

Required: 

Write a two page memorandum (a minimum of two pages) to Mr. Mark Smith, Chief Financial Officer, explaining the following items:

1) What is the purpose of adjusting the books and records and why are adjusting entries necessary when preparing the financial statements? Please explain.

2) What types of adjusting entries are necessary when a company is preparing and issuing interim financial statements? Please explain your answer by illustrating and using specific examples. More writing than simply giving me journal entries!

Answer rating: 100% (QA)

Adjustment entries are used to convert money transfers to the accrual accounting system Accrual accounting is based upon that revenue recognition principle which states that income should be recognize... View the full answer