When are adjusting entries generally made in the accounting cycle?

Adjusting entries are typically made at the end of the accounting period, just before the financial statements are prepared. The purpose of these entries is to ensure that all revenues and expenses are recognized in the period in which they occur, aligning with the accrual basis of accounting. This means that any income earned or expenses incurred must be recorded in the financial records, even if cash has not yet been received or paid.

By making these adjustments at the end of the period, businesses can accurately reflect their financial position and performance for that period, which is essential for stakeholders who rely on this information for decision-making. Adjusting entries address items that may not have been recorded during the period, such as accrued expenses, depreciation, or deferrals, thereby ensuring the financial statements present a true and fair view of the company’s financial status. This is a critical step in the accounting cycle to maintain the integrity and accuracy of financial reporting.