Question

Lynch Custom Adventures utilizes accrual-basis accounting. Until the ________ proves the ________ of debits and credits, Lynch will be unable to prepare GAAP-based financial statements.

Answer 1

Until the adjusted trial balance proves the equality of debits and credits, Lynch will be unable to prepare GAAP-based financial statements.

Explanation:

• The method of accrual basis accounting simply uses the technique of recording the transactions under two different heads. These heads are 'revenue' and 'expenses'
• In this method, whatever income the organization gets is recorded under the 'revenue' head and the costs that are incurred are recorded under the 'expenses' head.
• This dispenses convenience of both, recording the transactions and tallying them at the end.