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 of the following would you NOT consider when preparing adjusting journal entries for prepaid expenses at the end of an accounting period?

The remaining balance of the prepaid expense after adjustment

The estimated future cash flows from a potential investment project

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

The original amount paid for the prepaid expense

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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. At the end of an accounting period, adjustments are made to reflect the portion of the prepaid expense that has been used up during the period.

Identify the key elements to consider when adjusting prepaid expenses: These include the original amount paid for the prepaid expense, the portion of the prepaid expense that has been used up during the period, and the remaining balance of the prepaid expense after adjustment.

Recognize irrelevant information: The estimated future cash flows from a potential investment project are unrelated to the adjustment of prepaid expenses. This information does not impact the journal entry for prepaid expenses.

Determine the adjusting journal entry: To adjust prepaid expenses, debit the expense account to reflect the portion used during the period and credit the prepaid expense account to reduce its balance.

Ensure accuracy in the adjustment: Verify that the adjusted balance of the prepaid expense account matches the remaining balance after the portion used has been accounted for.