Textbook Notes (367,782)
Canada (161,395)
MGAB01H3 (126)
Liang Chen (50)
Chapter 4.2

chapter 4.2

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Financial Accounting
Liang Chen

Chapter 4 Types of Adjusting Entries Prepayments: prepaid expense or unearned revenues Accruals: Accrued expense or Accrued revenues Adjusting Entries for Prepayments Prepayments are either prepaid expenses or unearned revenues. Adjusting entries for prepayments record the portion of the payment that applies to the current accounting period. This type of adjusting is necessary because the prepayment no longer has future benefit and consequently is no longer an asset J it has been used. Costs that are paid for in cash before they are used are recorded as prepaid expenses. When such a cost is incurred, as asset (prepaid) account should be increased (debit) J to show the service or benefit that will be received in the future J and cash should be decreased (credited). Prepaid expenses are costs that expire either with the passage of time (i.e. insurance, rent) or through use (i.e supplies). At each statement date, adjusting entries are made for two purposes: (1) to record the expenses (expired costs) applicable to the current accounting period, and (2) to show the remaining amounts in the asset accounts. Depreciation is the process of allocating the
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