Final answer:
A reversing entry should never be made for an adjusting entry that affects cash accounts (option c) because cash transactions reflect actual cash flow which does not require reversal in the next accounting period.
Step-by-step explanation:
The subject of this question pertains to accounting, specifically the practice of making reversing entries following adjusting entries. A reversing entry is made at the beginning of the new accounting period to reverse or eliminate the impact of certain adjusting entries that were made at the end of the previous accounting period. These are typically used for accrued expenses or revenues.
To answer the student's question directly: A reversing entry should never be made for an adjusting entry that affects cash accounts. This is because cash accounts should always reflect the actual cash available and are not subject to estimates or adjustments that need to be reversed at the beginning of the next period, unlike accruals or deferrals that are estimates and require reversal.
Reversing entries are not generally made for adjustments that:
- Increase revenue, as these are usually matched to the period in which they are earned.
- Decrease an expense, as these pertain to the actual expenses incurred.
- Involve non-current assets, as the adjustments for these types of assets (such as depreciation) usually do not require reversal.