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

Introduction to Adjusting Journal Entries and Prepaid Expenses

Financial Accounting

3. Accrual Accounting Concepts

Introduction to Adjusting Journal Entries and Prepaid Expenses

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Multiple Choice

The best way to deal with an unanticipated expense in financial accounting is to:

Delay recording the expense until cash is paid.

Record the expense as a prepaid asset.

Ignore the expense until the end of the fiscal year.

Record the expense in the period it is incurred, using an adjusting journal entry if necessary.

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Verified step by step guidance

Understand the concept of expense recognition: In financial accounting, expenses should be recognized in the period they are incurred, regardless of when cash is paid. This aligns with the accrual basis of accounting.

Identify the nature of the unanticipated expense: Determine whether the expense is related to a service or product already received or consumed during the current accounting period.

Prepare an adjusting journal entry: If the expense has been incurred but not yet recorded, create an adjusting journal entry to ensure it is recognized in the correct period. This entry typically involves debiting an expense account and crediting a liability account (e.g., Accounts Payable).

Verify the impact on financial statements: Ensure that the adjusting entry properly reflects the expense in the Income Statement and any related liability in the Balance Sheet.

Review and document the adjustment: Maintain proper documentation for the adjusting entry, including supporting evidence for the expense, to ensure compliance with accounting standards and facilitate future audits.