Questions and Answers
Which of the following is the purpose of reversing entries?
When are reversing entries made?
Which of the following is not a type of adjusting entry that may require reversing?
When is a reversing entry for prepaid expense necessary?
Signup and view all the answers
What is the purpose of the reversing entry for rent income?
Signup and view all the answers
What is the balance of the rent receivable account after the reversing entry for rent income?
Signup and view all the answers
What is the adjustment for prepaid rent under the expense method?
Signup and view all the answers
What would be the adjustment if the asset method was used?
Signup and view all the answers
Which one of these is an example of an accrual?
Signup and view all the answers
Which one of these is an example of an adjusting entry that does not involve cash flows?
Signup and view all the answers
Which one of these is an example of a basic financial statement?
Signup and view all the answers
Which one of these is an example of a nominal or temporary account?
Signup and view all the answers
Which one of these is an example of a year-end statement of financial position?
Signup and view all the answers
Which one of these is an example of a liability account?
Signup and view all the answers
Which one of these is an example of a closing entry?
Signup and view all the answers
Study Notes
Reversing Entries
- Reversing entries are made to eliminate the effects of previous accruals or prepayments, ensuring that financial statements are presented accurately.
- Reversing entries are typically made at the beginning of an accounting period, immediately after the financial statements are prepared.
Types of Adjusting Entries
- Not all adjusting entries require reversing entries.
- Examples of adjusting entries that do not require reversing entries include depreciation and bad debt expenses.
Prepaid Expense
- A reversing entry for prepaid expense is necessary when the expense is initially recorded as an asset, but needs to be expensed in the subsequent period.
Rent Income
- The purpose of the reversing entry for rent income is to remove the rent income that was recorded in the previous period, but is not yet earned in the current period.
- After the reversing entry, the rent receivable account has a balance of zero.
Adjusting Entries for Prepaid Rent
- Under the expense method, the adjustment for prepaid rent is to debit rent expense and credit prepaid rent.
- Under the asset method, the adjustment for prepaid rent is to debit rent expense and credit rent payable.
Examples of Accrual, Adjusting Entries, and Financial Statements
- Accrual: recording rent revenue in the current period, even though it will not be received until the next period.
- Adjusting entry that does not involve cash flows: recording depreciation expense.
- Basic financial statement: income statement.
- Nominal or temporary account: rent revenue.
- Year-end statement of financial position: balance sheet.
- Liability account: rent payable.
- Closing entry: transferring rent revenue to retained earnings.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Test your knowledge on accruals and estimates with this quiz. Learn about the recognition of income or expenses before cash flow, as well as the concept of accrued income and expenses. Challenge yourself with questions on debits, credits, and liabilities.
