The following independent questions relate to the accrual basis of accounting:
1. It has been said that the only time a company's financial position is known for certain is when the company is wound up 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 the other property, plant, and equipment assets that are amortized) is a form of prepaid expense. Do you agree? Why do you think some accountants view property, plant, and equipment this way?