When are 'adjusting entries' typically made?

Adjusting entries are crucial because they ensure that the financial statements reflect the true financial position and performance of a business by aligning revenue and expenses with the correct accounting period. These entries are made at the end of an accounting period to account for expenses that have been incurred but not yet recorded, or revenues that have been earned but also not yet recorded. By making these adjustments, companies adhere to the accrual basis of accounting, which requires that revenues and expenses be recognized when they are earned or incurred, regardless of when cash is received or paid. This process is essential for producing accurate financial statements that provide a clear view of the company's financial status to stakeholders such as investors, management, and regulators.