Which of the following is the primary purpose of using journal entries in financial accounting?

• A. To prepare the annual financial statements directly
• B. To calculate the company’s net income for the period
• C. To record and document all of a business’s recurring and routine transactions
• D. To determine the market value of company assets

Answer: (C)

Verified step by step guidance

1. Understand the concept of journal entries: Journal entries are the foundational records in financial accounting used to document all financial transactions systematically.
2. Recognize the purpose of journal entries: The primary purpose is to record and document all of a business’s recurring and routine transactions, ensuring accuracy and compliance with accounting standards.
3. Clarify why journal entries are not used directly for financial statements: Journal entries are first posted to the ledger accounts, which are then used to prepare trial balances and ultimately financial statements.
4. Explain why journal entries are not used to calculate net income: Net income is derived from the income statement, which aggregates revenues and expenses from ledger accounts, not directly from journal entries.
5. Highlight why journal entries do not determine market value of assets: Market value is determined through valuation methods, not through journal entries, which focus on historical cost and transaction documentation.