An adjusted income statement can be a critical component of many business valuations — the process of reviewing a business’s financial status at a specific point in time. A valuation might include a review of financial statements, an evaluation of the business’s status and the market value of all its assets.
Businesses rely on their accountants to report accurate information. The owners and managers use this information to make decisions on behalf of the business. The accountant records financial transactions throughout the month as they occur. They receive documentation for each transaction, such as invoices or customer deposits. Sometimes at the end of the month, they also record adjusting entries. Adjusting entries update the financial records for events that have occurred, but no document for a transaction exists.
Adjusting entries bring the account balances current as of the last day of the month. This means that events that have not been documented yet are recorded through these entries. An example of an adjusting entry includes recording wages for the last days of the month for which employees have not been paid yet. Another example would be to record the electricity used through the end of the month even though a bill has not been received.