Why are adjustments made using adjusting journal entries crucial before tax preparation?

Adjusting journal entries are essential before tax preparation as they ensure accurate financial reporting. These entries are used to correct errors, allocate revenues and expenses to the correct accounting periods, and account for accrued or deferred items that may not have been processed during the normal course of business. This accuracy is vital because it ensures that all financial statements reflect the true financial position of the business, which is crucial when calculating taxes.

When financial statements are accurately prepared, it allows for a clear understanding of the business's income and expenses, thereby facilitating compliant tax reporting. This thoroughness helps avoid issues with tax authorities and ensures that a business is paying the correct amount of taxes based on its actual earnings. Adjustments ensure that all necessary data is included, providing a complete and accurate picture that directly impacts tax preparation.