Explain How Accounting Adjustments Affect Financial Statements

question 107

Essay

Explain how accounting adjustments affect financial statements.

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Definitions:

Expense Accounts

Accounts used to record the costs incurred to operate a business, which are then matched against revenues to determine net income.

Net Income

The total profit of a company after all expenses, including taxes and operating costs, have been deducted from total revenue.

Net Loss

The amount by which total expenses exceed total revenues for a business over a specified period, indicating financial performance.

Nominal Accounts

Accounts that are closed at the end of each accounting period, including revenue, expense, and withdrawal accounts.