As a business owner I fail to see why an adjusting entry for insurance is necessary. Why can I not just expense the entire amount when paid and forget about the other months? Would this make a difference if it was a cash based business rather than accrual? Adjusting entries in general are necessary. They can be for prepaid insurance, depreciation allocation, expense accrual or even unearned revenue adjustment. These help the company in producing consistent and clear financial statements. It doesn’t matter if the company is used to cash/accrual accounting. By producing consistent and clear financial statements, allows the business owners, investors, creditors and banks to see a how well the company is doing. The revenue and expenses are not over / understated any
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