Question

When a business records its adjusting entries at the end of a period, it is following which 2 GAAP accounting principles?

Multiple Choice
A. Revenue Recognition and Matching (Expense Recognition).
B. Matching (Expense Recognition) and Cost Principle.
C. Revenue Recognition and Going-Concern Principle.
D. Matching (Expense Recognition) and Business Entity Assumption.

Answer 1

Adjusting entries at the end of a period follow the Revenue Recognition and Matching (Expense Recognition) principles according to GAAP, ensuring accurate financial reporting.

Step-by-step explanation:

When a business records its adjusting entries at the end of a period, it is adhering to the Revenue Recognition and Matching (Expense Recognition) principles of GAAP accounting. The Revenue Recognition principle dictates that revenue should only be recognized when it is earned, not necessarily when cash is received. The Matching principle requires that expenses be matched to the revenues they helped generate in the same period. Both principles ensure that a company's financial statements present a fair and consistent view of the company's financial performance and position.