Question

The analysis process for preparing adjusting entries involves two basic steps. Identify the two steps and explain why both are necessary.

Answer 1

The two steps as follows:
Stage 1 Transaction Processing
Transactions which describe business events are recorded and posted during the period. Each transaction affects the company's financial position.

Stage 2 Period Processing
Period processing is performed periodically to summarize transactions that have been recorded during the accounting period. Period processing updates the accounting records and prepares financial statements that reflect net income for the period and financial position at the end of the period. This processing 'closes the books' for the period.