Learning Objective 3: Prepare adjusting entries for accruals.

Explain how to prepare adjusting entries for accruals in accounting.

• Adjusting entries for accruals are prepared by recording revenues earned and expenses incurred that have not yet been recorded.

• Adjusting entries for accruals are prepared by reversing all previous entries.

• Adjusting entries for accruals are prepared by only recording cash transactions.

• Adjusting entries for accruals are prepared by ignoring any unpaid expenses.

Revenues for services performed but not yet recorded at the statement date are called _________.

• accrued revenues

• deferred revenues

• unearned revenues

• prepaid revenues

Expenses incurred but not yet paid or recorded at the statement date are called _________.

• accrued expenses

• prepaid expenses

• deferred revenue

• unearned income

Accrued Revenues: Prior to adjustment, both assets and revenues are understated.

• True

• False

Accrued Revenues: An adjusting entry for accrued revenues results in an increase (a debit) to an asset account and an increase (a credit) to a ______ account.

• revenue

• liability

• expense

• capital

Accrued Revenues: An adjusting entry for accrued revenues results in which of the following?

• A debit to an asset account and a credit to a revenue account

• A credit to an asset account and a debit to a revenue account

• A debit to a liability account and a credit to an expense account

• No entry is required

Give two examples of accrued revenue.

• Interest, rent, services.

• Salaries, wages, commissions.

• Depreciation, amortization, impairment.

• Inventory, supplies, equipment.

What is the reason for adjustment in accrued revenue?

• Services performed but not yet received in cash or recorded.

• Expenses incurred but not yet paid.

• Cash received in advance for services not yet performed.

• Inventory purchased but not yet sold.

What happens to accounts before adjustment for accrued revenue?

• Assets understated. Revenues understated.

• Assets overstated. Revenues overstated.

• Assets understated. Revenues overstated.

• Assets overstated. Revenues understated.

What is the adjusting entry for accrued revenue?

• Dr. Assets, Cr. Revenues.

• Dr. Revenues, Cr. Assets.

• Dr. Liabilities, Cr. Revenues.

• Dr. Revenues, Cr. Liabilities.