Multiple Choice
Which of the following best describes the adjusting entry to record an accrued expense at the end of an accounting period?
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3. Accrual Accounting Concepts
Adjusting Entries: Accrued Expenses
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In the context of managerial accounting, wages, material costs, and taxes are examples of:
A
Accrued expenses
B
Prepaid expenses
C
Unearned revenues
D
Depreciation expenses
Verified step by step guidance1
Step 1: Begin by understanding the definitions of the terms provided in the options. Accrued expenses are costs that have been incurred but not yet paid. Prepaid expenses are payments made in advance for goods or services to be received in the future. Unearned revenues are payments received before delivering goods or services. Depreciation expenses represent the allocation of the cost of tangible assets over their useful life.
Step 2: Analyze the nature of wages, material costs, and taxes. These are costs incurred during the production or operational process, and they are typically paid after the service or goods have been received or used.
Step 3: Compare the characteristics of wages, material costs, and taxes with the definitions of the options. Since these costs are incurred but not immediately paid, they align with the concept of accrued expenses.
Step 4: Eliminate the other options. Prepaid expenses involve payments made in advance, which does not apply to wages, material costs, or taxes. Unearned revenues involve receiving payment before providing goods or services, which is unrelated to these costs. Depreciation expenses pertain to asset allocation, not operational costs.
Step 5: Conclude that wages, material costs, and taxes are examples of accrued expenses, as they represent costs incurred but not yet paid.
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