These adjustments typically occur at the end of each accounting period, and are akin to temporarily cutting off the flow through the business pipeline to take a measurement of what is in the pipeline. Time brings about change, and an adjusting process is needed to cause the accounts to appropriately reflect those changes. In other words, the ongoing business activity brings about changes in account balances that have not been captured by a journal entry. This occurs because of multi-period items (revenue and expense items that relate to more than one accounting period) and accrued items (revenue and expense items that have been earned or incurred in a given period, but not yet entered into the accounting records). However, a caution was issued about adjustments that may be needed to prepare a truly correct and up-to-date set of financial statements.
In the previous chapter, tentative financial statements were prepared directly from a trial balance.