Practice question · Multiple choice
Adjusting entries are made at period-end and never involve cash. Why is that the defining feature?
Hints
- Ask what has already been recorded, and what the adjustment is fixing.
- The service was delivered in December and paid in January. Which period should carry the revenue?
Show the answer
C. Because cash transactions were already recorded when they happened
Why
The money was recorded when it moved, so the adjustment's only job is to place the earning in the right period, pure accrual mechanics with no new cash event. That is why adjustments always hit one balance-sheet and one income-statement account, never two of either.
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