Asked Sep 2, 2019

We have learned about four types of adjustments: (1) prepaid expenses, (2) unearned revenues, (3) accrued expenses, and (4) accrued revenues. Select one specific adjusting entry that falls under one of the four types and post the following:

1. A description of the adjustment and why it is necessary.

2. Provide an example of the transaction; include the debit and credit, with dates and amounts.


Expert Answer

Step 1


Prepaid expense is a current asset. It is an expense that is paid in advance for which the service is received over the time period of the service.

For example: On July 1, 2015 Company A paid its building rent of $48,000 for a whole year in advance. Here, total advanced rent is reported as prepaid rent expense. Therefore, every month proportionate amount will be debited to the rent expense and the same amount is credited to the prepaid rent expense.

Step 2


Assume that the financial year ends on December 31, 2015, therefore the Financial Statements will be prepared as on 31st December. However there are rent expenses related to n...


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Credit Post Debit Account Title and Explanation Date (S) 48,000 (S) Ref. Prepaid rent Cash July 1 48,000 2015 (To record the prepaid annual rent paid in cash) December Rent expense 24,000 31, 2015 Prepaid rent expense (To recordrent expense incurred at the end of the year) 24,000


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