Adjusting Journal Entries

Question 1

Facts on matching revenues and related expenses

Answer 1

accrual basis accounting is in accordance with U.S. GAAP and matches revenues with expenses; in order to properly match revenues with expenses in the periods in which they occur, it is sometimes necessary to defer or accrue revenues or expenses

in the case of unearned/deferred revenues, cash is received before the revenue is earned

in the case of prepaid/deferred expenses, cash is paid before the expense is incurred

in the case of accrued revenues/receivables, cash is received after the revenue has been earned

in the case of accrued expenses/accrued liabilities/accounts payables/other payables cash is paid after the expense has been occurred

Question 2

Rules for recording adjusting journal entries

Answer 2

adjusting journal entries must be recorded by the end of the entity’s fiscal year, before the preparation of financial statements

adjusting journal entries never involve the cash account

all adjusting entries will hit one income statement account and one balance sheet account