Final answer:
Adjusting journal entries are required for deferrals, accruals, and estimates to ensure financial statements accurately reflect the company's financial activity within a given period.
Step-by-step explanation:
Adjusting journal entries are necessary for three situations: deferrals, accruals, and estimates. Adjusting entries ensure that revenue and expenses are recognized in the period in which they occur, following the accounting principle of matching. Without these entries, financial statements would not present an accurate or fair view of the company's financial performance or position.
Deferrals relate to revenues or expenses that have been received or paid in advance and are recorded as liabilities or assets until they are earned or used. Accruals involve revenues that have been earned or expenses that have been incurred but not yet recorded. Estimates are used for items that are typically difficult to measure precisely, such as depreciation, bad debts, or warranty obligations.
By making these adjustments, the accounting records accurately reflect the economic reality of transactions and the correct financial state of the entity during a specific period.