Question

Which of the following is not a characteristic of adjusting entries?

a) They are recorded at the end of the accounting period.
b) They are necessary to ensure accurate financial statements.
c) They always involve cash transactions.
d) They may involve accrued or prepaid expenses.

Answer 1

Adjusting entries are made at the end of the accounting period to ensure accurate financial statements. They may involve accrued or prepaid expenses but do not always involve cash transactions.

Step-by-step explanation:

The correct answer is c) They always involve cash transactions. Adjusting entries are made at the end of the accounting period to ensure that the financial statements are accurate and reflect the correct financial position of the company. They may involve accruals or deferred expenses, such as accrued expenses or prepaid expenses. These adjustments do not always involve cash transactions, as they are made to update the accounts and reflect the true financial position of the company.