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Adjusting Entries: Prepaid Expenses, Accrued Expenses, and Depreciation

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Adjusting Entries: Prepaid Expenses, Accrued Expenses, and Depreciation

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Questions and Answers

Which of the following best describes prepaid expenses?

Expenses incurred or used, but not yet paid

Expenses that are incurred and immediately paid

Expenses that have no impact on the company's financial statements

Expenses already paid, but not yet incurred or used (correct)

What are accrued expenses?

Expenses that are incurred and immediately paid

Expenses already paid, but not yet incurred or used

Expenses that have no impact on the company's financial statements

Expenses incurred or used, but not yet paid (correct)

Which term refers to the reduction in the value of an asset over time due to wear and tear?

Amortization

Accrual

Depreciation (correct)

Impairment

What is residual value?

The value expected in the asset after its useful life Signup and view all the answers

What is acquisition cost?

The amount an entity paid to acquire the depreciable asset Signup and view all the answers

What does the straight-line depreciation formula calculate?

The straight-line depreciation formula Signup and view all the answers

Study Notes

Prepaid Expenses

Prepaid expenses are payments made in advance for goods or services that have not yet been received or used.

Accrued Expenses

Accrued expenses are expenses that have been incurred but not yet paid.

Depreciation

Depreciation refers to the reduction in the value of an asset over time due to wear and tear.
It is a non-cash expense that represents the decrease in value of an asset over its useful life.

Residual Value

Residual value is the estimated value of an asset at the end of its useful life.

Acquisition Cost

Acquisition cost is the initial cost of purchasing an asset, including any additional costs necessary to put the asset into use.

Straight-Line Depreciation Formula

The straight-line depreciation formula calculates the depreciation expense of an asset over its useful life by dividing the acquisition cost by the number of years of its useful life.

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Description

Test your knowledge of adjusting entries for prepaid expenses, accrued expenses, and depreciation. Understand the concept of prepaid expenses, accrued expenses, and depreciation and their impact on financial statements.