Information users need to know how well company is performing. Actually, companies will identify and record the company’s financial events on daily basis. To summarize and give information about the company’s ending position at the end of the period, they must prepare their financial statements by using the accounts balances. This process will begin with the trial balance. This trial balance is unadjusted because the accounts are not yet ready to prepare the financial statements. The reasons that are as follows:
1. Some financial events are not recorded on a day-to-day basis because it is unwise to do so such as consumption of supplies or the earnings of salaries by employees.
2. Some costs are not recorded during the current accounting period because these costs expire with the passage of time rather than as a result of recurring daily transactions such as rent expense or insurance expense.
3. Some types of expenses may be unrecorded. For example, an electricity bill may not be received until next accounting period.