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 is NOT an example of an adjusting journal entry related to prepaid expenses?

Recording the expiration of prepaid insurance at the end of the period

Transferring a portion of prepaid supplies to supplies expense

Paying cash in advance for a one-year insurance policy

Recognizing rent expense for the portion of prepaid rent that has been used

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Verified step by step guidance

Step 1: Understand the concept of adjusting journal entries. Adjusting journal entries are made at the end of an accounting period to allocate income and expenses to the correct period. They ensure that the financial statements reflect the true financial position and performance of the company.

Step 2: Focus on prepaid expenses. Prepaid expenses are payments made in advance for goods or services to be received in the future. Examples include prepaid insurance, prepaid rent, and prepaid supplies. Adjusting entries for prepaid expenses involve recognizing the portion of the prepaid amount that has been used or expired during the period.

Step 3: Analyze the examples provided in the problem. The first three examples involve adjusting entries: (1) Recording the expiration of prepaid insurance, (2) Transferring a portion of prepaid supplies to supplies expense, and (3) Recognizing rent expense for the portion of prepaid rent used. These are all adjustments made at the end of the period to allocate expenses correctly.

Step 4: Identify the example that is NOT an adjusting journal entry. Paying cash in advance for a one-year insurance policy is a transaction that occurs when the payment is made, not an adjustment at the end of the period. This is a regular journal entry, not an adjusting entry.

Step 5: Conclude that the correct answer is 'Paying cash in advance for a one-year insurance policy,' as it does not involve adjusting the accounts at the end of the period.