Final answer:
Under the accrual basis of accounting, adjusting entries are used to change account balances before financial statements are prepared. Expenses are recognized when they are incurred in the accrual basis of accounting. Net income is calculated by subtracting expenses from revenue.
Option 'a' is the correct.
Step-by-step explanation:
Under the accrual basis of accounting, adjusting entries are used to change account balances before financial statements are prepared.
This is option A. Adjusting entries are made at the end of an accounting period to ensure that revenue and expenses are properly recorded. For example, if an expense is incurred but not yet paid, an adjusting entry will be made to recognize the expense and reduce the corresponding liability.
In the accrual basis of accounting, expenses are recognized when they are incurred, regardless of when they are paid. This is different from the cash basis of accounting, where expenses are recognized only when they are both paid and incurred. Option B is incorrect.
Net income is calculated by subtracting expenses from revenue. Cash inflows and outflows are not directly used in calculating net income. Option C is incorrect. Option D is also incorrect. Net income does not necessarily equal cash flows from operations.