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Questions and Answers
Which of the following is an adjusting journal entry resulting from an accrual?
Which of the following is an adjusting journal entry resulting from an accrual?
- Interest receivable; interest revenue
- Interest expense; interest payable
- Accounts receivable; service revenue (correct)
- Prepaid rent; rent expense
What is the effect of initially recording deferred revenue when cash is received from a customer?
What is the effect of initially recording deferred revenue when cash is received from a customer?
- Revenue is increased
- Retained earnings increases
- Net income is not affected
- Liabilities are not affected (correct)
In an adjusting journal entry, which of the following pairs is involved in recognizing interest earned but not yet received?
In an adjusting journal entry, which of the following pairs is involved in recognizing interest earned but not yet received?
- Prepaid insurance; insurance expense
- Interest receivable; interest revenue (correct)
- Salaries payable; salaries expense
- Prepaid rent; rent expense
When cash is received from a customer in advance for services that will be provided later, which of the following accounts is affected?
When cash is received from a customer in advance for services that will be provided later, which of the following accounts is affected?
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Which of the following is true about deferred revenue?
Which of the following is true about deferred revenue?
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Study Notes
Adjusting Journal Entries and Accruals
- An adjusting journal entry resulting from an accrual is one that recognizes revenue earned but not yet received or expenses incurred but not yet paid.
Deferred Revenue
- When cash is received from a customer in advance for services that will be provided later, the Deferred Revenue account is affected.
- Deferred revenue is a liability account that represents payment received from customers for goods or services that have not yet been provided.
- Deferred revenue is initially recorded when cash is received from a customer, and it is gradually reduced as the services are provided.
Recognizing Interest Earned
- In an adjusting journal entry, the pair of accounts involved in recognizing interest earned but not yet received is Interest Revenue and Interest Receivable.
Characteristics of Deferred Revenue
- Deferred revenue is a liability that represents payment received from customers in advance of delivering goods or services.
- Deferred revenue is gradually reduced as the services are provided, and it is recognized as revenue on the income statement.
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