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Questions and Answers
Which type of adjusting journal entry is made to allocate the cost of a prepaid expense over time?
Which type of adjusting journal entry is made to allocate the cost of a prepaid expense over time?
What effect do accrued revenues have on financial statements when recognized?
What effect do accrued revenues have on financial statements when recognized?
Which adjusting entry would you make for supplies used during the period?
Which adjusting entry would you make for supplies used during the period?
Which type of adjusting entry is recorded when a company recognizes collectable amounts from unearned revenues earned in the period?
Which type of adjusting entry is recorded when a company recognizes collectable amounts from unearned revenues earned in the period?
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What is the primary purpose of making an adjusting journal entry for accrued expenses?
What is the primary purpose of making an adjusting journal entry for accrued expenses?
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Study Notes
Adjusting Journal Entries: Prepaid Expenses
- Prepaid expenses represent payments made in advance for future expenses.
- Adjusting entries are needed to recognize the expense portion used during the period.
- Example: Prepaid rent. If you pay rent for a whole year in advance, each month you use part of the prepaid rent.
Adjusting Journal Entries: Supplies
- Supplies are assets used in the normal course of operations.
- An adjustment is needed to reflect the amount of supplies used.
- Example: A company uses office supplies. The difference between the beginning supplies balance and the ending supplies balance is the amount of supplies used.
Adjusting Journal Entries: Unearned Revenues
- Unearned revenues represent cash received for services or goods that have not yet been performed or delivered.
- Adjusting entries are needed to recognize the portion of revenue earned during the period.
- Example: A company receives money for a subscription. If the customer's subscription starts in the next accounting period, the company hasn't earned any revenue.
Adjusting Journal Entries: Accrued Revenues
- Accrued revenues are revenues earned but not yet received.
- The adjusting entry increases revenue and accounts receivable.
- Example: A company provided services but hasn't yet received payment.
Adjusting Journal Entries: Accrued Expenses
- Accrued expenses are expenses incurred but not yet paid.
- Adjusting entries increase expenses and liabilities.
- Example: Employee salaries earned but not paid.
Adjusting Journal Entries: Depreciation
- Depreciation allocates the cost of a long-term asset over its useful life.
- Adjusting entries for depreciation increase depreciation expense and accumulated depreciation.
- Example: Equipment has a cost and is useful for a certain amount of time. Each period the company recognizes the portion of the asset's cost that was used in that period.
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Description
This quiz covers the essential concepts of adjusting journal entries related to prepaid expenses, supplies, and unearned revenues. You'll learn how to properly recognize and adjust these entries in financial accounting. Test your knowledge with examples and see how well you understand these crucial topics.
