What is a common purpose of adjusting journal entries?

Adjusting journal entries serve the essential purpose of ensuring that the financial statements reflect the accurate financial position and performance of a business. Specifically, these entries are typically made at the end of an accounting period to account for revenues that have been earned but not yet recorded (accrued revenues) and expenses that have been incurred but not yet recorded (accrued expenses). Additionally, they adjust deferred items where cash has been received or paid but the revenue or expense has not yet been recognized in the financial statements.

This process allows for compliance with the accrual basis of accounting, which requires that financial transactions be recorded in the period they occur, regardless of when cash changes hands. As a result, adjusting journal entries are crucial for reflecting the true financial circumstances of a company before preparing financial statements.

The other options do not accurately describe the function of adjusting journal entries. Permanently deleting erroneous entries is not appropriate. Instead, correcting entries would be made rather than deleting them entirely. Recording prior year revenue pertains to a different context, as it typically involves closing out revenue accounts or correcting past periods, while changing the accounting period of a transaction involves reclassifying entries rather than adjusting for accrual or deferral purposes.