Which of the following is a typical purpose of adjusting entries related to revenue?

• A. To reduce expenses in the current period.
• B. To defer all revenue to later periods.
• C. To delay recognition of revenue indefinitely.
• D. To ensure revenues are recognized in the period earned, whether cash has been received or not.

Answer: (D)

Revenue recognition on an accrual basis means revenue is recorded when the service is performed or the goods are delivered, not when cash is received. Adjusting entries at period end align revenues with the period in which they are earned. They handle revenues that have been earned but not yet recorded (accruals) and revenues that have been collected before earning (deferrals) so the books reflect the correct period.

For example, if services were performed but not billed, you would record revenue in the period earned by increasing accounts receivable and revenue. If cash was received in advance, you would later recognize the revenue as it’s earned by reducing the liability (unearned revenue) and increasing revenue. The goal is to match revenue to the period of earning, regardless of cash timing.

So, the typical purpose is to ensure revenues are recognized in the period earned, whether cash has been received or not.