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Accounting (Text Only)
Classifying types of adjustments
Classify the following items as (a) prepaid expense, (b) unearned revenue, (c) accrued revenue, or (d) accrued expense:
1. A two-year premium paid on a fire insurance policy.
2. Fees earned but not yet received.
3. Fees received but not yet earned.
4. Salary owed but not yet paid.
5. Subscriptions received in advance by a magazine publisher.
6. Supplies on hand.
7. Taxes owed but payable in the following period.
8. Utilities owed but not yet paid.
Accrual Accounting:
Accrual Accounting is an accounting method in which all the revenue and expenses are recorded only when they are earned or incurred, irrespective of the receipt or payment of cash.
To Classify: The transactions to various types of adjustments
- In this case, two year premium paid in advance on a fire insurance policy. So the adjustment belongs to the prepaid expenses.
- Fees earned but not yet received, it means it is receivable. So the adjustment belongs to the accrued revenue.
- Fees earned in advance but the performance related to the fees yet to be performed. So this adjustment belongs to the unearned revenue.
- In the case of wages owed but payable in the following year, this adjustment belongs to the accrued expense...
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