You are an accountant in a medium sized business. Before finishing preparing the end of year financial statements (income statement and balance sheet) according to accrual accounting you noticed that not all activities of the business have been captured in the ledger balances and the trial balance. You realise that you may have to make some adjusting entries and prepare an adjusted trial balance before you can proceed to prepare financial statements.

However, Maria the owner of the business does not agree that you should include some numbers in the accounts for events that have not happened. She wants you to ignore those adjustments.

How would you convince her that we cannot ignore the adjustments and prepare the income statement and balance sheet using the unadjusted trial balance? What would happen if you prepare the financial statements without the adjustments?