Adjusting entries are required
A)because some costs expire with the passage of time, but have not yet been recorded.
B)when the company's profit is below budget.
C)when expenses are recorded in the period in which they are incurred.
D)when revenues are recorded in the period in which they are earned.

Question

Quizplus · Accepted Answer

Adjusting entries are required because some costs expire with the passage of time, but have not yet been recorded. These costs include items such as prepaid expenses, accrued expenses, and depreciation expenses. Adjusting entries are necessary to accurately reflect the company's financial position and ensure that financial statements are prepared according to generally accepted accounting principles (GAAP). Option B is not accurate because adjusting entries are not related to the company's profit being below budget. Options C and D are partially correct, but do not fully capture the reason why adjusting entries are necessary. While expenses should be recorded in the period in which they are incurred and revenues should be recorded in the period in which they are earned, adjusting entries are not limited to these two items.

Adjusting Entries Are Required