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Adjusting Entries Summary

Adjusting Entries Summary

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Types of Adjusting Entries Journal Entries If the business fails to adjust accounts Original Entries Adjusting Entries Subsequent Entries Deferrals 1. Deferred Expense (Asset Expense) Cash is paid BEFORE expenses are recognized Option I (Asset Expense): Prepaid Insurance 4,000 Cash 4,000 Insurance Expense 3,000 Prepaid Insurance 3,000 Option I: Assets overstated Expenses understated Net income overstated OE overstated Option II (Expense Asset): Insurance Expense 4,000 Cash 4,000 Prepaid Insurance 1,000 Insurance Expense 1,000 2. Deferred Revenue (Liability Revenue) Cash is received BEFORE revenues are recognized Option I (Liability Revenue): Cash 5,000 Unearned Revenue 5,000 Unearned Revenue 3,000 Earned Revenue 3,000 Option I:
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