Recap: Balance Day Adjustments

The trial balance shows prepaid advertising as $10,000. Of this amount, $1,500 is consumed. What is the Balance Day Adjustment journal entry?

• Dr Advertising exp $1,500

  Cr Prepaid exp $1,500

• DR Prepaid exp $1,500

  Cr Advertising $1,500

• Dr Advertising exp $1,500

  Cr Accrued exp $1,500

• Dr Accrued exp $1,500

  Cr Advertising exp $1,500

Answer explanation

Advertising was paid in advance, so we need to expense the portion that was consumed this accounting period. This amount is owed to us.

A customer paid $750 in advance for a service job that we will commence next financial year. What is the balance day adjustment journal entry?

• Dr Accrued revenue $750

  Cr Service fee revenue $750

• Dr Service fee revenue $750

  Cr Accrued revenue $750

• Dr Service fee revenue $750

  Cr Unearned revenue $750

• Dr Unearned revenue $750

  Cr Service fee revenue $750

Answer explanation

We need to reverse $750 of the service fee revenue and recognise this amount as unearned revenue this accounting period. As we owe this amount.

A stocktake revealed a shortage of $500 worth of stock. What is the balance day adjustment journal entry?

• Dr Inventory adjustment $500

  Cr Inventory $500

• Dr Inventory $500

  Cr Inventory adjustment $500

Answer explanation

We need to reduce the balance of inventory by $500, so we credit this account and recognise an inventory adjustment as a debit of $500.

Prepaid expenses are classified as:

• A Current Asset

• A Liability

• An Expense

• A Non-Current Asset

Answer explanation

Prepaid expenses are considered a current asset because they are expected to be consumed within 12 months

Accrued Expenses are classified as:

• an Asset

• a Liability

• an Expense

• Revenue

Answer explanation

A liability because the expense is yet to be paid in the next accounting period (we owe this) but is incurred this accounting period.

Accrued Revenues are classified as:

• a Current Asset

• a Liability

• an Expense

• a Non-Current Asset

Answer explanation

a Current Asset because the time between earning the revenue and receiving payment less than 12 months

Unearned Revenue are classified as:

• Revenue

• an Expense

• a Liability

• Assets

Answer explanation

Unearned revenues are payments for sales/services received in advance and earned in the next accounting period. It is therefore a Liability because it is owed by the business.

What is the purpose of calculating and posting Balance Day Adjustments?

PEARs are Assets. What does the acronym stand for? (select all that apply)

• Prepaid Expenses

• Accrued Revenue

• Unearned Revenue

• Accrued Expenses

URAE are Liabilities. What does the acronym stand for? (select all that apply)

• Prepaid Expenses

• Accrued Revenue

• Unearned Revenue

• Accrued Expenses