The following independent questions are related to accrual-basis accounting:

1. It has been said that the only time a company's financial position is known for certain is when the company is ended and its only asset is cash. Why is this statement true?

2. A friend suggests that the purpose of adjusting entries is to correct errors in the accounts. Is your friend's statement true? What is the purpose of adjusting entries if the statement is wrong?

3. The text suggested that furniture (and each other plant asset that is depreciated) is a form of prepaid expense. Do you agree? Why do you think some accountants view plant assets this way?