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

Adjusting Entries: Accrued Expenses

Financial Accounting

3. Accrual Accounting Concepts

Adjusting Entries: Accrued Expenses

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Multiple Choice

The adjusting entry required to recognize warranty expense will cause:

a decrease in expenses and an increase in assets

a decrease in assets and a decrease in liabilities

an increase in expenses and an increase in liabilities

an increase in revenues and an increase in assets

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Verified step by step guidance

Understand the concept of warranty expense: Warranty expense is an estimated cost that a company expects to incur for repairing or replacing products under warranty. It is recognized as an expense in the period when the related sales are made, following the matching principle.

Identify the impact of recognizing warranty expense: When warranty expense is recorded, it increases the company's expenses, which reduces net income. At the same time, a liability account (e.g., Warranty Liability) is increased to reflect the obligation to cover future warranty claims.

Determine the journal entry for warranty expense: The adjusting entry typically involves debiting Warranty Expense (to increase expenses) and crediting Warranty Liability (to increase liabilities). This ensures the expense is matched with the revenue generated from the sale of the products.

Analyze the options provided: Evaluate each option based on the accounting impact of the adjusting entry. For example, 'an increase in expenses and an increase in liabilities' aligns with the journal entry for warranty expense recognition.

Conclude the correct answer: Based on the analysis, the correct impact of the adjusting entry is 'an increase in expenses and an increase in liabilities,' as this reflects the proper accounting treatment for warranty expense recognition.