Chapter 3 Adjusting the accounts

Adjusting entries are required

• because some costs expire with the passage of time and have not yet been journalized.

• when the company's profits are below the budget.

• when expenses are recorded in the period in which they are incurred.

• when revenues are recorded in the period in which they are earned.

Prepaid expenses are

• paid and recorded in an asset account before they are used or consumed.

• paid and recorded in an asset account after they are used or consumed.

• incurred but not yet paid or recorded.

• incurred and already paid or recorded.

Accrued expenses are

• paid and recorded in an asset account before they are used or consumed.

• paid and recorded in an asset account after they are used or consumed.

• incurred but not yet paid or recorded.

• incurred and already paid or recorded.

Unearned revenues are

• received and recorded as liabilities before they are earned.

• earned and recorded as liabilities before they are received.

• earned but not yet received or recorded.

• earned and already received and recorded.

Accrued revenues are

• received and recorded as liabilities before they are earned.

• earned and recorded as liabilities before they are received.

• earned but not yet received or recorded.

• earned and already received and recorded.