Prepare Trading and Profit and Loss account from the following information for the year 31^st December 2015.

Opening stock 5,500 Return outward 1,500

Purchases 18,400 Return inward 900

Manufacturing wages 4,400 General expenses 700

Sales 42,000 Discount allowed 800

Carriage inward 600 Discount Received 500

Carriage outward 700 Interest Received 450

Factory Rent 2000 Closing Stock 8700

Office Rent 1200.

a) Why is it necessary to record the adjusting entries in the preparation of final accounts?

b) While preparing final accounts, what treatment is made of prepaid expenses?