THE EFFECT OF ADJUSTING ENTRIES ON THE FINANCIAL STATEMENTS (A CONCEPTUAL APPROACH)

Don Berthrong, the manager of the local Books-A-Million, is wondering whether adjusting entries will affect his financial statements. Don’s business has grown steadily for several years, and Don expects it to continue to grow for the next several years at a rate of 5 to 10 percent per year. Nearly all Don’s sales are for cash. Other than cost of goods sold, which is not affected by adjusting entries, most of Don’s expenses are for items that require cash outflows (e.g., rent on the building, wages, utilities, insurance).