Adjusting Accounts Themes

Question 1

Unearned revenue

Answer 1

When payment received for services in a future accounting period. An unearned revenue account is credited (obligation exists)

•earned when service provided

• Adjusting entry made to record the revenue earned and to show liability exists
• airline tickets

Question 2

Prepaid expense

Answer 2

Recorded as an asset before consumed or used

• cost incurred, asset account debited to show future service or benefit
• expires through time or consumption (rent or supplies)
• debit expense and credit asset

Question 3

Accrued expenses

Answer 3

Incurred, not yet recorded or paid at statement date (think salaries)

Adjustments record the obligations that exist at the balance sheet date and recognize expenses that apply to the current accounting period.

• Liability / Expense relationship
• debit (increase) expense account
• credit(increase) liability account

Question 4

Accrued revenue

Answer 4

Earned revenue not received in cash or recorded at statement date (rent / interest / services)

•adjusting entry show receivable exists at the balance sheet date and to record that revenue has been earned during the period

• asset / revenue relationship
• debit (increase) asset account
• credit (increase) revenue account