Final answer:
Adjusting entries are necessary when transactions affect the revenue or expenses of more than one accounting period. These entries ensure that the financial statements accurately reflect the correct amounts for revenue and expenses. The correct answer is a) True.
Step-by-step explanation:
Adjusting entries are necessary when transactions affect the revenue or expenses of more than one accounting period. These entries are made at the end of an accounting period to ensure that the financial statements accurately reflect the correct amounts for revenue and expenses.
For example, if a company receives payment for services that will be performed over a period of several months, the revenue from those services should be recognized gradually over the period of performance rather than all at once when payment is received. This requires an adjusting entry to record the revenue in the correct accounting period.
Similarly, if a company pays for an insurance policy that covers a period of one year, the expense of the policy should be recognized gradually over the coverage period rather than all at once when the payment is made. This also requires an adjusting entry to record the expense in the correct accounting period.