Final answer:
The statement that a reversing entry should be made for every adjusting entry involving asset or liability accounts is false. Reversing entries are optional and mainly used for temporary adjustments like accrued expenses or revenues to avoid double counting in the new period.
Step-by-step explanation:
It is false that a reversing entry should be made for every adjusting entry that creates a balance in an asset or liability account. Reversing entries are an optional step in the accounting cycle and are typically used for accrued expenses and revenues that have been recorded but will reverse or become actual transactions in the next period. The purpose of reversing entries is to prevent double counting of revenue or expenses when the actual transaction occurs.
For example, consider a company that accrues interest expense at the end of an accounting period. The initial adjusting entry records the interest expense and a corresponding liability. When the company makes a reversing entry at the beginning of the new period, it reverses the adjustment. Then, when the interest payment is actually made, it is recorded in the usual manner and the temporary accounts are cleared.