Under the accrual basis of accounting, adjustments are often made for prepaid expenses and unearned revenues.

Question

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Under the accrual basis of accounting, adjustments are made to ensure that revenues and expenses are recognized in the appropriate period, regardless of when cash is collected or paid. Prepaid expenses and unearned revenues represent cash payments or receipts that have not yet been earned or used, and so adjustments are necessary to reflect the portion that should be recognized in the current period.

Under the Accrual Basis of Accounting, Adjustments Are Often Made