Under accrual adjusting entries, what do accruals result in?

• A. Increases in assets or decreases in liabilities.
• B. Only affects cash accounts.
• C. Increases in liabilities or receivables to recognize expenses or revenues before cash is exchanged.
• D. Only affects equity.

Answer: (C)

Under accrual adjusting entries, activities are recorded when they occur, not when cash moves. Accruals specifically bring in a receivable or a payable to reflect revenue earned or expense incurred before cash changes hands. This keeps the financial statements aligned with the period’s economic activity. For example, if revenue has been earned but cash hasn’t been received, you’d record an increase in assets (receivable) and in revenue. If an expense has been incurred but not yet paid, you’d record an increase in liabilities (payables) and in the expense. So accruals result in increases in liabilities or receivables to recognize revenues or expenses before cash is exchanged.