The purchase of a new building and expensive machinery will likely impact the year-end income statement. These assets are considered long-term ones, and the expense of these assets is not recognized immediately. Instead, they are gradually depreciated over their useful lives. (Adjustments and Worksheet, n.d.). As a result, the company is required to make adjusting entries at the end of the year to record the depreciation expense for the building and machinery. This depreciation expense will reduce the company’s net income for the year.
Adjustments at the end of each accounting period are essential because they ensure that the financial statements appropriately and accurately reflect the company’s financial position and performance. In addition, adjustments guarantee that both revenues and expenses are recorded in the appropriate accounting period. Moreover, this will ensure the precise valuation of assets and liabilities (Adjustments and Worksheet, n.d.). The company can provide more accurate financial statements to stakeholders, such as investors and creditors, by making adjustments. This can help them make qualified decisions about the company, including its financial opportunities.
A worksheet is a valuable tool that helps management understand how adjusting entries will affect the financial statements. By preparing a worksheet, the accountant can see the impact of adjustments on the company’s net income, total assets, liabilities, and equity (Adjustments and Worksheet, n.d.). This information can help management decide about the company’s operations and financial position, such as whether to invest in new assets or pay off existing debt. In addition, the worksheet can help identify errors or inconsistencies in the financial statements, allowing for corrections to be made before finalizing the statements (Adjustments and Worksheet, n.d.). Overall, the worksheet provides vital information to management that can aid in decision-making and improve the accuracy of financial statements.
Reference
Adjustments and Worksheet. (n.d.).