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

Which of the following is the primary goal of making adjusting journal entries for prepaid expenses at the end of an accounting period?

To record cash payments made during the period

To increase the total assets reported on the balance sheet

To recognize revenue before it is earned

To match expenses with the revenues they help to generate in the same period

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Verified step by step guidance

Understand the concept of prepaid expenses: Prepaid expenses are payments made in advance for goods or services that will be consumed or used in future periods. Examples include prepaid rent, insurance, or subscriptions.

Learn the purpose of adjusting journal entries: Adjusting entries are made at the end of an accounting period to ensure that revenues and expenses are recognized in the period they are incurred, following the accrual basis of accounting.

Focus on the matching principle: The matching principle in accounting states that expenses should be recognized in the same period as the revenues they help to generate. This ensures accurate representation of financial performance.

Identify the impact of prepaid expenses: When prepaid expenses are initially recorded, they are treated as assets because they represent future economic benefits. Adjusting entries are required to allocate the portion of the prepaid expense that has been used or expired during the period.

Prepare the adjusting journal entry: To adjust for prepaid expenses, debit the appropriate expense account (e.g., Rent Expense) to recognize the expense incurred, and credit the prepaid expense account (e.g., Prepaid Rent) to reduce the asset balance. This aligns the expense with the revenue generated in the same period.