Multiple Choice
Which of the following conditions would NOT normally indicate that standard costs for accrued expenses should be revised?
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3. Accrual Accounting Concepts
Adjusting Entries: Accrued Expenses
Multiple Choice
Which of the following is a typical accrued expense adjustment?
A
Recording salaries earned by employees but not yet paid at the end of the period
B
Recognizing prepaid insurance as an expense
C
Recording unearned revenue as earned
D
Depreciating equipment over its useful life
Verified step by step guidance1
Understand the concept of accrued expenses: Accrued expenses are expenses that have been incurred but not yet paid by the end of the accounting period. These are recorded as liabilities on the balance sheet and as expenses on the income statement.
Analyze the first option: 'Recording salaries earned by employees but not yet paid at the end of the period.' This is a typical example of an accrued expense because salaries are incurred as employees work, but payment may occur in the next period.
Evaluate the second option: 'Recognizing prepaid insurance as an expense.' This is not an accrued expense adjustment. Prepaid insurance is an asset that is gradually expensed over time as the coverage period elapses.
Evaluate the third option: 'Recording unearned revenue as earned.' This is not related to accrued expenses. Unearned revenue is a liability that is adjusted when the company provides goods or services, converting it into earned revenue.
Evaluate the fourth option: 'Depreciating equipment over its useful life.' This is not an accrued expense adjustment. Depreciation is the systematic allocation of the cost of an asset over its useful life, not an expense that has been incurred but not yet paid.
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