Because adjusting entries allow the proper application of the revenue recognition principle or the matching principle,they are a necessary part of cash-basis accounting.

Question

Quizplus · Accepted Answer

Adjusting entries are not a part of cash-basis accounting. Cash-basis accounting only records transactions when cash is received or paid, whereas adjusting entries are made to recognize revenue or expenses that have been earned or incurred but not yet recorded. Adjusting entries are a necessary part of accrual accounting, which follows the revenue recognition principle and the matching principle.

Because Adjusting Entries Allow the Proper Application of the Revenue