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

Where is the information typically obtained to journalize adjusting entries for prepaid expenses?

Directly from the cash receipts journal

From the trial balance and additional end-of-period data

From the post-closing trial balance

From the bank reconciliation statement

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Verified step by step guidance

Understand the concept of adjusting entries: Adjusting entries are made at the end of an accounting period to update account balances before preparing financial statements. They ensure that revenues and expenses are recognized in the correct period.

Identify the nature of 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 need to be adjusted as they are used or expire.

Determine the source of information for adjustments: Adjusting entries for prepaid expenses are typically based on the trial balance and additional end-of-period data. The trial balance provides the initial balances of accounts, while end-of-period data includes information about the portion of prepaid expenses that have been used or expired during the period.

Recognize why other options are incorrect: The cash receipts journal records cash inflows and is not relevant for adjusting prepaid expenses. The post-closing trial balance is prepared after closing entries and does not contain the necessary data for adjustments. The bank reconciliation statement deals with reconciling cash balances and is unrelated to prepaid expenses.

Apply the adjustment process: To journalize adjusting entries for prepaid expenses, calculate the portion of the prepaid expense that has been used or expired during the period. Debit the appropriate expense account and credit the prepaid expense account to reflect the reduction in the asset and recognition of the expense.