Which of the following is a characteristic of adjusting entries?

• A. They are made at the end of an accounting period to update account balances.
• B. They always involve the cash account.
• C. They are optional and not required for accurate financial statements.
• D. They are recorded whenever cash is received or paid.

Answer: (A)

Verified step by step guidance

1. Understand the purpose of adjusting entries: Adjusting entries are made at the end of an accounting period to ensure that account balances reflect the true financial position and performance of the business. They are necessary for accurate financial statements.
2. Recognize that adjusting entries do not involve the cash account: Adjusting entries typically involve accounts like accrued revenues, accrued expenses, prepaid expenses, unearned revenues, and depreciation. Cash is not part of these adjustments.
3. Clarify that adjusting entries are mandatory: Adjusting entries are required to comply with the accrual basis of accounting, which ensures that revenues and expenses are recognized in the period they are incurred, regardless of when cash is received or paid.
4. Understand the timing of adjusting entries: Adjusting entries are recorded at the end of the accounting period, not whenever cash is received or paid. This is to align the financial statements with the accrual accounting principles.
5. Review the characteristics of adjusting entries: Adjusting entries update account balances to reflect accurate financial information, do not involve cash, are mandatory for accurate financial reporting, and are made at the end of the accounting period.