Final answer:
Adjusting Journal Entries are made at the end of an accounting period to allocate income and expenses correctly, ensuring financial statements are accurate. They are vital to upholding the matching and accrual accounting principles and are essential for informed decision-making by stakeholders.
Step-by-step explanation:
The purpose of Adjusting Journal Entries is central to the Accounting Cycle. These entries are crucial as they enable a company to adhere to the matching and accrual principles of accounting. Adjusting entries are made at the end of an accounting period to properly allocate income and expenses to the time period in which they actually occurred.
Adjusting Journal Entries are important because they ensure that a company's financial statements are accurate and complete. These adjustments are necessary for expenses that have been incurred but not yet recorded (accrued expenses), revenues that have been earned but not yet recorded (accrued revenues), expenses that have been prepaid and should now be recorded as actual expenses (prepaid expenses), and revenues that have been received in advance and should now be recorded as earned revenue (unearned revenues).
Without these entries, financial statements would not provide a true and fair view of the company's financial performance and position, potentially leading to incorrect decision-making by stakeholders. Accurate financial statements are essential for making sound business decisions and are of particular interest to investors, creditors, and regulatory agencies.