What type of accounts primarily use Adjusting Journal Entries?

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Study for the Texas Aandamp;M University (TAMU) ACCT229 Exam. Get exam-ready with flashcards, detailed explanations, and multiple choice questions. Enhance your understanding and boost your confidence!

Adjusting Journal Entries are primarily used with temporary accounts, also known as nominal accounts. These accounts include revenues and expenses that are closed at the end of each accounting period. Adjusting entries are necessary to ensure that the income statement reflects the correct revenues earned and expenses incurred during the period, adhering to the accrual basis of accounting.

Temporary accounts track financial performance over a specific period and need to be adjusted before they are reset to zero for the next accounting period. For example, if a company earned revenue that it has not yet recorded or incurred expenses that have not been accounted for, an adjusting journal entry would be necessary to appropriately reflect these transactions in the current period's financial statements.

In contrast, permanent accounts, which include assets, liabilities, and equity, carry their ending balances into the next accounting period and are not closed at period end. Operational and contra accounts also play different roles that do not necessitate the same type of adjustments that temporary accounts do. Thus, the focus on adjusting entries being primarily associated with temporary accounts is fundamental to ensuring accurate reporting in the financial statements.