Why Are Adjusting Entries Prepared

question 163

Multiple Choice

Why are adjusting entries prepared?

• A)Because some accounts are not up to date.
• B)Because some day to day transactions have not been recorded.
• C)Because the financial statements are misstated.
• D)A and C

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Definitions:

Externality

An outcome from economic action that affects people who are not directly involved, and this impact can be beneficial or harmful.

Economically Efficient

A state where resources are allocated in a way that maximizes the production of goods and services, with no way to improve someone's condition without worsening another's.

Coase Theorem

A principle stating that if property rights are well-defined and transaction costs are low, parties will negotiate to correct externalities without government intervention.

Transaction Costs

Expenses incurred during the process of buying or selling goods and services that are not directly related to their price.