Question

Adjusting entries are usually dated the last day of the accounting period and they convert accounts from the cash basis of accounting to the _____ basis of accounting.

a. Deferral
b. Accrual
c. Month-end

Answer 1

Adjusting entries convert accounts from cash basis to accrual basis accounting, ensuring revenue and expenses are recorded when they are earned or incurred regardless of cash transactions.

Step-by-step explanation:

Adjusting entries are usually dated the last day of the accounting period, and they convert accounts from the cash basis of accounting to the accrual basis of accounting. The purpose of adjusting entries is to ensure that revenues and expenses are recognized in the period they occur, not necessarily in the period in which cash is received or paid.

In accrual basis accounting, revenues are recognized when earned and expenses when incurred, which may not coincide with the cash transactions. Adjusting entries may include accruals for expenses and revenues that have not yet been recorded, as well as deferrals, which involve expenses and revenues that were received or paid in advance but haven't yet been earned or used.