Chapter 4, Problem 1STQ

To determine

Identify the purpose of adjusting entries.

Answer to Problem 1STQ

Option (c) is the correct answer.

Apply the realization principle and the matching principle to transactions affecting two or more accounting periods.

Explanation of Solution

Option (a) Adjust the retained earnings account for the revenue, expense, and dividends recorded during the accounting period is not the purpose of the adjusting entries. Thus option (a) is not the correct answer.

Option (b) Adjust daily the balances in asset, liability, revenue, and expense accounts for the effects of business transaction is not the purpose of adjusting entries. Thus, option (b) is not the correct answer.

Option (c) Apply the realization principle and the matching principle to transactions affecting two or more accounting period is the purpose of adjusting entries. Thus, option (c) is the correct answer.

Option (d) Prepare revenue and expense accounts for recording the transactions of the next accounting period is not the purpose of the adjusting entries. Thus, option (d) is not the correct answer.

Thus, as per the above explanation option (a), (b), and (d) are the wrong answers. Hence, Option (c) is the correct answer.

Conclusion

Thus, Option (c) is the correct answer.

Apply the realization principle and the matching principle to transactions affecting two or more accounting periods.