Accounting: Accrued Expenses and Revenues
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Questions and Answers

The adjusting entry related to accrued expense is required to show obligations at balance sheet date.

True

Failure to record the adjusting entry on the accrued salaries expense will result in the overstatement of year-end liability and understatement of current expenses.

True

When an item of revenue is collected and recorded in advance, it is normally called an accrued income.

False

Prepaid expenses, such as prepaid rent and prepaid insurance, represent assets for a business until they are used.

<p>True</p> Signup and view all the answers

The adjusting entry required for a prepaid expense is always a debit to an expense and a credit to an asset.

<p>True</p> Signup and view all the answers

In preparing adjusting entries for unearned income under the liability method, an income account will be debited and a liability account will be credited.

<p>True</p> Signup and view all the answers

Unearned revenues are earned by providing a service to the customer.

<p>False</p> Signup and view all the answers

The cost of a long-term asset, such as equipment, is transferred to expense as it is used during its useful life.

<p>False</p> Signup and view all the answers

All property, plant, and equipment accounts are depreciated.

<p>True</p> Signup and view all the answers

A correct adjusting entry for doubtful accounts will always result in a debit balance of the Allowance for Doubtful Accounts after posting the adjusting entries.

<p>False</p> Signup and view all the answers

Study Notes

Accrued Expenses

  • Accrued expenses require an adjusting entry to show obligations at the balance sheet date.
  • Failure to record the adjusting entry results in understatement of current expenses and overstatement of year-end liability.

Accrued Revenues

  • Accrued revenues accumulate over time, such as interest revenue and rent revenue, or result from performed services that are unbilled or uncollected.

Prepaid Expenses

  • Prepaid expenses, like prepaid rent and prepaid insurance, represent assets until used.
  • The adjusting entry for a prepaid expense involves debiting an expense and crediting an asset.

Unearned Income

  • Unearned income is initially recorded as a liability, not an income account.
  • When unearned income is earned, an income account is credited and a liability account is debited.

Long-term Assets

  • The cost of a long-term asset, such as equipment, is transferred to expense as it is used during its useful life through depreciation.
  • Not all property, plant, and equipment accounts are depreciated.

Doubtful Accounts

  • A correct adjusting entry for doubtful accounts results in a debit balance of the Allowance for Doubtful Accounts after posting the adjusting entries.

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Test your knowledge of accounting principles with these true or false questions about accrued expenses and revenues.

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