Which of the following regarding adjusting entries is correct?

Question

Quizplus · Accepted Answer

Adjusting entries are needed because we use accrual-basis accounting. This is because accrual accounting recognizes revenue when it is earned and expenses when they are incurred, rather than when cash is received or paid out. Adjusting entries help to ensure that all revenue and expenses are properly recognized in the correct accounting period. Options A, B, and D are incorrect because adjusting entries are not recorded for all external transactions, are not solely related to cash inflows and outflows, and do not necessarily result in temporary accounts having a balance of zero.

Which of the Following Regarding Adjusting Entries Is Correct