The main objectives for which adjustments are made in the books of accounts are as follows:
To give effect to non cash or national incomes and expenses:
There are certain transactions which do not result in any inflow or outflow of cash into the business but are necessary to give effect for ascertaining the correct amount of profits. Such transactions are related to depreciation on fixed assets, Provision for doubtful debts, interest on capital and drawings etc.
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ADVERTISEMENTS:
Bringing into accounts expenses of current year not yet entered in the books of accounts:
Matching concept of accounting lays down that all expenses of current year which have been paid or not must be debited to the profit and loss account of current year. It means that all such expenses which have become due but not yet paid or those expenses which have been paid but were not yet due must be adjusted, otherwise, the profits disclosed by Profit and loss account will not be true profits.
Bringing into accounts incomes of current year not yet recorded in the books of accounts:
ADVERTISEMENTS:
Matching concept of accounting also applies to incomes which lays down that income of current year must be credited in profit or loss account of current year irrespective of the fact whether they have been received or not.