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Classifying adjusting entries The following accounts were taken from the unadjusted trial balance of Murray Co., a congressional lobbying firm. Indicate whether or not each account would normally require an adjusting entry. If the account normally requires an adjusting entry, use the following notation to indicate the type of adjustment: AE—Accrued Expense AR—Accrued Revenue PE—Prepaid Expense UR—Unearned Revenue To illustrate, the answer for the first account follows:
Financial And Managerial Accounting
Solutions
Financial And Managerial Accounting
Classifying adjusting entries
The following accounts were taken from the unadjusted trial balance of Murray Co., a congressional lobbying firm. Indicate whether or not each account would normally require an adjusting entry. If the account normally requires an adjusting entry, use the following notation to indicate the type of adjustment:
AE—Accrued Expense
AR—Accrued Revenue
PE—Prepaid Expense
UR—Unearned Revenue
To illustrate, the answer for the first account follows:
Indicate the types of adjustment and requirement of adjusting entry for the given accounts.
Explanation of Solution
Adjusting entries:
Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle. All adjusting entries affect at least one income statement account (revenue or expense), and one balance sheet account (asset or liability).
Prepaid expenses:
Advance payment for future expenses is called as prepaid expenses. These prepaid expenses are considered as assets until they are expensed or used. For the portion of used assets, expenses would be recognized by way of passing an adjusting entry. Prepaid expenses are also known as deferred expenses, because at the time of making payment, expenses are not recognized but deferred until they are used up.
Unearned revenues:
Collection of cash in advance to render service or to deliver goods in future is known as unearned revenues...
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