Which of the following is NOT a purpose of adjusting entries?

Adjusting entries are an essential part of the accounting process, primarily aimed at ensuring that the financial statements reflect the true financial position and results of operations of a business for a given period.

The purpose of adjusting entries includes updating account balances for accrued and deferred items that may not have been recorded at the end of an accounting period. This is crucial for accurate financial reporting. Therefore, updating incorrect figures from previous periods is an essential task of adjusting entries, as is ensuring compliance with Generally Accepted Accounting Principles (GAAP), which mandate accurate and timely reporting of financial information.

Preparing records for audits is another critical function of adjusting entries. Auditors rely on accurate and complete financial records to assess the fairness of the financial statements. Adjustments help clarify that all revenues and expenses have been recorded in the appropriate period, thereby supporting the integrity of financial reporting.

On the other hand, inflating revenue figures runs counter to the principles of honest financial reporting and ethical accounting practices. Adjusting entries should never manipulate financial results to present a misleading picture of a company’s performance. Thus, the assertion that inflating revenue figures is a purpose of adjusting entries is not valid and is consistent with a clear understanding of ethical accounting practices.