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

When preparing adjusting journal entries for prepaid expenses at the end of an accounting period, which of the following should be considered?

The portion of the prepaid expense that has been used up during the period

The total amount of cash paid for the prepaid expense during the period

The market value of similar prepaid expenses

The estimated future value of the prepaid asset

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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 to be received in the future. These are recorded as assets initially because they provide future economic benefits.

Identify the portion of the prepaid expense that has been used up during the accounting period: At the end of the period, the portion of the prepaid expense that has been consumed or expired needs to be recognized as an expense in the income statement.

Calculate the used portion: Subtract the remaining balance of the prepaid expense (if any) from the total prepaid amount to determine the portion that has been used up during the period.

Prepare the adjusting journal entry: Debit the appropriate expense account (e.g., Rent Expense, Insurance Expense) for the used portion and credit the Prepaid Expense account to reduce the asset balance.

Ensure accuracy and compliance: Verify that the adjustment aligns with the matching principle, which states that expenses should be recognized in the same period as the revenues they help generate.