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 cycle do companies use to evaluate and improve financial performance, particularly when preparing adjusting journal entries for prepaid expenses?

Sales cycle

Production cycle

Accounting cycle

Operating cycle

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Verified step by step guidance

Understand the concept of the accounting cycle: The accounting cycle is a systematic process used by companies to record, analyze, and report financial transactions. It includes steps such as journalizing transactions, posting to the ledger, preparing trial balances, and making adjusting entries.

Recognize the role of adjusting journal entries: Adjusting journal entries are made at the end of an accounting period to ensure that revenues and expenses are recognized in the correct period, following the accrual basis of accounting.

Identify prepaid expenses: Prepaid expenses are payments made in advance for goods or services to be received in the future. Examples include prepaid rent, insurance, or subscriptions. These are initially recorded as assets and adjusted over time.

Learn how adjusting entries for prepaid expenses work: To adjust prepaid expenses, companies reduce the prepaid asset account and record the expense in the appropriate expense account. This ensures accurate financial reporting.

Connect the accounting cycle to financial performance evaluation: The accounting cycle helps companies evaluate and improve financial performance by ensuring accurate and timely financial reporting, which is critical for decision-making and compliance.