Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Adjusting Entries: Accrued Expenses

Financial Accounting

3. Accrual Accounting Concepts

Adjusting Entries: Accrued Expenses

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Multiple Choice

Which of the following best describes the adjusting entry for underapplied overhead at the end of an accounting period?

Debit Manufacturing Overhead and credit Cost of Goods Sold

Debit Manufacturing Overhead and credit Raw Materials Inventory

Debit Cost of Goods Sold and credit Manufacturing Overhead

Debit Work in Process and credit Manufacturing Overhead

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Verified step by step guidance

Understand the concept of underapplied overhead: Underapplied overhead occurs when the actual overhead costs incurred during a period exceed the overhead costs applied to production. This needs to be adjusted to ensure accurate financial reporting.

Identify the accounts involved: The adjustment for underapplied overhead typically involves the Manufacturing Overhead account and the Cost of Goods Sold account. Manufacturing Overhead is credited to reduce its balance, and Cost of Goods Sold is debited to increase its balance.

Determine the purpose of the adjusting entry: The goal is to allocate the underapplied overhead to the Cost of Goods Sold, as this reflects the actual cost incurred during the period and ensures the financial statements are accurate.

Formulate the journal entry: The adjusting entry for underapplied overhead is structured as follows: Debit Cost of Goods Sold (to increase the expense) and Credit Manufacturing Overhead (to reduce the overhead account balance).

Review the options provided: Compare the options given in the problem to the correct journal entry structure. The correct answer is 'Debit Cost of Goods Sold and credit Manufacturing Overhead,' as this properly adjusts for underapplied overhead.