Explain the revenue recognition principle and the matching principle. Differentiate between the cash basis and the accrual basis of accounting.

Explain why adjusting entries are needed and identify the major types of adjusting entries.

Adjusting entries are first entered into the general journal, and then they are posted to the individual ledger accounts. A second trial balance (the adjusted trial balance) is prepared to prove that debits and credits are still equal after the accounts have been adjusted.

The financial statements are prepared from the adjusted trial balance.