Multiple Choice
Accrued revenues are revenues that are earned in a period but are both unrecorded and not yet received in cash. Which of the following best describes accrued revenues?
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3. Accrual Accounting Concepts
Adjusting Entries: Accrued Revenues
Multiple Choice
Once a trial balance has been prepared, the next step of the accounting cycle involves:
A
Preparing adjusting entries, such as those for accrued revenues
B
Posting transactions to the ledger accounts
C
Preparing the post-closing trial balance
D
Recording closing entries
Verified step by step guidance1
Understand the accounting cycle: The accounting cycle is a series of steps that ensure financial transactions are accurately recorded and reported. After preparing the trial balance, the next steps involve adjustments, closing entries, and preparing final reports.
Step 1: Preparing adjusting entries. Adjusting entries are made to account for accrued revenues, accrued expenses, prepaid expenses, and other items that ensure the financial statements reflect the true financial position of the company. For example, if revenue has been earned but not yet recorded, an adjusting entry is required.
Step 2: Posting transactions to the ledger accounts. This involves transferring the adjusting entries to the respective ledger accounts to update their balances. Ledger accounts are used to track individual financial transactions for each account.
Step 3: Recording closing entries. Closing entries are made at the end of the accounting period to transfer balances from temporary accounts (e.g., revenues, expenses) to permanent accounts (e.g., retained earnings). This resets the temporary accounts for the next accounting period.
Step 4: Preparing the post-closing trial balance. After closing entries are recorded, a post-closing trial balance is prepared to ensure that all temporary accounts have been closed and the ledger is balanced. This trial balance includes only permanent accounts.
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