AIPB Mastering Adjusting Entries Practice Test

The statement that adjusting entries precede the preparation of financial statements is accurate because adjusting entries are a crucial step in the accounting cycle. These entries are made at the end of an accounting period to update account balances before the financial statements are prepared. They ensure that the financial statements reflect all income earned and expenses incurred, adhering to the matching principle of accounting.

Adjusting entries can include accruals, deferrals, and estimates, all of which ensure that revenues and expenses are recognized in the correct period. This adjustment process allows for accurate financial reporting, which is vital for stakeholders who rely on these statements for decision-making.

While adjusting entries are often made monthly to better match revenues and expenses with the periods in which they occur, they are not exclusively confined to this frequency. They are also not solely limited to the year-end, and they do not take place during the closing phase; instead, they occur before closing to prepare the accounts for accurate statement presentation.