Final answer:
The statement is true. Accrual basis accounting requires that expenses be recorded when they are incurred, not when they are paid. An adjusting entry for an accrued expense increases an expense account and a corresponding liability account.
Step-by-step explanation:
When accrual basis accounting matches an expense to a period before it is actually paid, an adjusting entry is necessary to record the accrued expense and corresponding liability. This statement is A. True.
Under accrual basis accounting, revenues are recorded when they are earned, and expenses are recorded when they are incurred, regardless of when the cash is actually received or paid. Therefore, if a company incurs an expense in one accounting period but will not pay it until a future period, it must make an adjusting entry to record the expense in the period when it occurred. This accurately matches expenses with the revenues they help generate, which is consistent with the matching principle of accrual accounting.
Adjusting entries for accrued expenses often involve increasing an expense account and increasing a corresponding liability account, such as Accrued Expenses Payable or Accounts Payable. Therefore, the liability reflects the company's obligation to pay for the goods or services it has received, even though the payment has not yet been made.