Financial reports should be produced before any adjustments have been made.

Financial reports should be produced before any adjustments have been made.

• A. True
• B. False
• C. Sometimes
• D. Not sure

Answer: (B)

Adjustments are needed to reflect the true timing of revenues and expenses. In accrual accounting, income is recognized when earned and expenses when incurred, not just when cash changes hands. If reports are produced before making adjustments, they miss items like revenue earned but not billed, expenses incurred but not yet paid, depreciation, and the use of prepaid assets, leading to distorted assets, liabilities, and results of operations. The normal sequence is to prepare an unadjusted balance, record adjusting entries, then produce the financial statements from the adjusted balances. So financial reports should not be produced before these adjustments are made.

Adjustments are needed to reflect the true timing of revenues and expenses. In accrual accounting, income is recognized when earned and expenses when incurred, not just when cash changes hands. If reports are produced before making adjustments, they miss items like revenue earned but not billed, expenses incurred but not yet paid, depreciation, and the use of prepaid assets, leading to distorted assets, liabilities, and results of operations. The normal sequence is to prepare an unadjusted balance, record adjusting entries, then produce the financial statements from the adjusted balances. So financial reports should not be produced before these adjustments are made.