Final answer:
AJE, or Adjusting Journal Entries, are made to update account balances before preparing financial statements, in accordance with the accrual accounting's matching principle.
Step-by-step explanation:
The purpose of Adjusting Journal Entries (AJE) is to update the accounts and bring them to their correct balances before the financial statements are prepared. This process is necessary to reflect the revenues that have been earned and the expenses that have been incurred during the accounting period. AJEs are a key component of the accrual basis of accounting, which is guided by the matching principle.
The matching principle necessitates AJEs by requiring that expenses be matched with revenues in the period in which they are incurred and the revenues are earned, regardless of when the cash transactions occur. This principle ensures that financial statements are accurate and show a true picture of a company's financial performance and position.