The need for Accounting Rules and Adjustments

So to determine the effect of a year's operations on the company's position the total of all revenue items (revenues and expenses) for the period, plus an appropriate share of the capital items pertaining to that period (depreciation) must be taken into consideration. The remaining share of the capital items and any revenue items that will affect future periods are left as balances 'on the books' and appear on the balance sheet and are carried forward.

Annual Reporting

Difficult classification decisions are needed to separate revenue from capital transactions. In common with many accounting classification problems, this distinction arises out of the need to report on the activities of the company over a specific period of time. As we have seen, a balance sheet reflects the logic of the accounting equation, and can be drawn up at any time, to reflect anything from the effect of a single transaction to the net effect of all transactions over the whole trading life of the company. However, to provide useful information about the company it is necessary to provide a consistent and detailed breakdown of transactions under appropriate headings so that meaningful comparisons can be made between companies or over time.