Adjusting entries are essential components of the accounting cycle, ensuring financial statements are accurate and reflect the true financial position of a business. These entries are made at the end of an accounting period to update account balances before financial statements are prepared. They typically involve accruals, such as recording revenues earned but not yet received, and expenses incurred but not yet paid. Adjusting entries also include deferrals, like prepaid expenses and unearned revenues, which need to be adjusted for the passage of time. Through these adjustments, a business can adhere to the matching principle, ensuring revenues and expenses are recognized in the correct periods.