This is mainly because some funds are earned over time across different transactions making them to be recorded as adjustments. In some cases, earnings are not accounted or recorded since the revenue was earned even though the cash was not received (Frenz, n.d.).
During the period of accounting, accountants usually account earnings and profits in informal ledgers. This data is later transferred to informal worksheets or formal accounting statements at the end of this period when accountants close the accounts through adjusting ending balances in the informal ledgers. Some of the common earnings and profits adjustments include addition to taxable income, subtraction from taxable income, and timing adjustments.
Importance of Accounting E&P:
As previously mentioned, accounting earnings and profits is a challenging process despite of its importance to a company. First, it helps the company to know how much profit it has realized on every financial year hence showing the...
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