Adjusting entries are needed because an entity:
A) has earned revenue during the period by selling products from its central operations.
B) has expenses.
C) uses the accrual basis of accounting.
D) uses the cash basis of accounting rather than the accrual basis.

Question

Quizplus · Accepted Answer

Adjusting entries are necessary to ensure that the financial statements are prepared in accordance with the accrual basis of accounting. This basis requires that revenues and expenses are recognized in the period in which they are earned or incurred, regardless of when cash is received or paid. Adjusting entries are used to record revenue or expenses that have been earned or incurred but not yet recorded, as well as to correct errors and update account balances.

Adjusting Entries Are Needed Because an Entity