Question

Which of the following items does not require an adjusting entry? Multiple Choice

a)Prepaid expenses.
b)Depreciation.
c)Cash.
d)Unearned revenues.
e)Accrued expenses.

Answer 1

Cash does not require an adjusting entry. Adjusting entries are necessary for prepaid expenses, depreciation, unearned revenues, and accrued expenses to adhere to the accrual accounting principles, but not for the cash account, which is updated with every transaction.

Step-by-step explanation:

The item that does not require an adjusting entry is c) Cash.

Adjusting entries are made in accrual accounting to allocate revenues and expenses to the period in which they actually are applicable. They ensure that the revenue recognition and matching principles are followed.

• Prepaid expenses: These are payments made for goods or services to be received in the future and must be adjusted as they are used.
• Depreciation: This is an allocation of the cost of an asset over its useful life and requires adjustment to reflect usage for the period.
• Unearned revenues: These are payments received before services are performed and need adjusting as the services are provided.
• Accrued expenses: These are expenses incurred but not yet paid, and they must be recorded in the period they are incurred.
• Cash: It is a real account that reflects actual transactions and thus does not require an adjustment because it is routinely updated whenever transactions occur.