Multiple Choice
Which of the following is the correct formula for the annual holding cost in the Economic Order Quantity (EOQ) model?
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3. Accrual Accounting Concepts
Introduction to Adjusting Journal Entries and Prepaid Expenses
Multiple Choice
Which of the following is the correct process to enter an adjusting journal entry for prepaid expenses in QuickBooks Online (QBO)?
A
Go to the 'Sales' menu, select 'Invoices', and create a new invoice for the adjustment.
B
Go to the 'Banking' menu, select 'Bank Feeds', and match the transaction to an existing expense.
C
Go to the 'Accounting' menu, select 'Chart of Accounts', choose the appropriate account, and click 'Journal Entry' to record the adjustment.
D
Go to the 'Reports' menu, select 'Profit and Loss', and edit the report to include the adjustment.
Verified step by step guidance1
Step 1: Understand the concept of prepaid expenses. Prepaid expenses are payments made in advance for goods or services to be received in the future. These are recorded as assets initially and adjusted periodically to reflect the expense incurred over time.
Step 2: Recognize the need for an adjusting journal entry. Adjusting entries are made to ensure that the financial statements reflect the correct amounts for the period. For prepaid expenses, this involves transferring the appropriate portion from the asset account to the expense account.
Step 3: Navigate to the 'Accounting' menu in QuickBooks Online (QBO). This menu is where you manage accounts and record journal entries.
Step 4: Select 'Chart of Accounts' and locate the account associated with the prepaid expense. This account will typically be listed under assets.
Step 5: Click 'Journal Entry' to record the adjustment. In the journal entry, debit the appropriate expense account to reflect the incurred expense and credit the prepaid expense account to reduce the asset balance.
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