ACC 290 Week 2 DQ3
ACC 290 Week 2 DQ3
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This 0 page Study Guide was uploaded by kimwood Notetaker on Friday November 13, 2015. The Study Guide belongs to a course at a university taught by a professor in Fall. Since its upload, it has received 18 views.
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Date Created: 11/13/15
Week 2 DQ3 What are adjusting entries and why are they necessary What accounts are subject to adjusting journal entries and why What are the types of adjusting entries provide examples It is necessary for organizations to adjust entries so that revenue and expense recognition principles are complied with In an accrual accounting system revenues must be recorded in the period that they were earned in and expenses must be recognized in the period that they were incurred in In order to make sure that this happens properly entries must be adjusted so the reports contain the most complete information Adjustments occur because events are not always recorded daily some costs expire over time or because a service has not yet billed Each time a financial statement is prepared entries must be adjusted to assure that all the financial information is uptodate Every adjusted entry will have an income statement account and a balance sheet account that it affects There are two types of adjusting entries accruals and deferrals Accruals are accrued revenues and accrued expenses Accrued revenues are revenues that are earned but not yet received in cash or recorded Accrued expenses are expenses that have occurred but have not been paid An example of accrued revenue is rent because the business rented out an item but has not yet been paid for it Deferrals include prepaid expenses and unearned revenues Prepaid expenses are expenses that have been paid ahead of time but have not yet been used Prepaid expenses include a prepaid insurance policy Unearned revenues are payments that are received and recorded as a liability before it is actually earned Prepaid expenses that might be deferred include supplies because they are paid ahead of time but not used until later Unearned revenues can be a client that paid for a fence to be installed but the new fence is not installed until two weeks later References Kimmel P D Weygandt J J amp Kieso D E 2011 Financial accounting Tools for business decision making 6th ed Hoboken NJ John Wiley amp Sons
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