Accounting for IGCSE & O level - Preparation Of Financial Statements (Section 26 - No. 32)
In a simple accrual accounting system, which of the following are reasons to make adjustments to financial statements? (Select all that apply)
To account for depreciation of assets.
To account for earned, but not yet received, revenue.
To allocate prepaid rent over the relevant period.
To record all cash transactions as they occur.
Explanation
Accrual accounting involves adjusting for expenses over time (depreciation, prepaid rent, etc.) and earned revenue (but not yet cash). Cash-based accounting simply records when the cash changes hands.
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