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Accounting Chapter 3 Notes

The adjusting entry is as follows may 31 rent expense

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Unformatted text preview: nse before the cash payment or it records the revenue before the cash is received. - Adjust entries fall into 5 types a. Prepaid Expense (prepaid) b. Depreciation (prepaid) c. Accrued Expenses (Accrual) Catherine Liou Accounting 121 Feb 17, 2013 d. e. Accrued Revenues (accrual) Unearned Revenues (prepaid) Prepaid Expenses - Prepaid Expenses: advanced payments of expenses. I.E prepaid expenses are always paid for before they are used up. They are considered assets rather than expenses. When prepayment is used up, the used portion of the asset becomes an expense via an adjusting journal entry. EX: Prepaid Rent - Suppose Smart touch prepays 3 months’ office rent of 3,000 ( 1,000 per month) on May 1, 2013. They entry is record is; May 1 Prepaid Rent (A+) 3,000 Cash (A- ) 3,000 Paid Rent in Advance Then Posting " ASSETS Prepaid Rent May 1 3,000 - Throughout May, Prepaid Rent maintains this balance. But 3,00 is NOT the amount of Prepaid rent for the Balance Sheet at May 31 b/c you only paid 1,000 dollars for one- month rent. - At May 31, Prepaid rent should be decreased for the amount that has been used up. An asset that has expired is an expense. The adjusting entry transfers 1,000 dollars from Prepaid Rent to Rent Expense. The adjusting entry is as follows: May 31 Rent Expense 1,000 Prepaid Rent 1,000 To Record rent expense - Then post again so the prepaid rent and rent expense show correct ending balances: ASSETS...
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