Which description best defines an adjusting entry?

• A. Recording cash receipts
• B. Recording payroll
• C. End-of-period entry to update account balances
• D. A transaction to close accounts

Answer: (C)

An adjusting entry is an end-of-period update to reflect items that have occurred but aren’t yet recorded, or have been prepaid, accrued, or used up. This step ensures the financial statements follow accrual accounting by recognizing revenues and expenses in the period they relate to and updating assets and liabilities to reflect the current amounts. It’s different from recording cash receipts or payroll, which are actual transactions as they happen, and from closing entries, which move temporary balances to permanent accounts and reset them for the next period. Thus the best description is an end-of-period entry to update account balances.