Question

Question: Classify the following adjusting entries as involving prepaid expenses (PE), unearned revenues (UR),

accrued

expenses (AE), or accrued revenues (AR).

a. To record revenue earned that was previously received as cash in advance.

b. To record wages expense incurred but not yet paid (nor recorded).

c. To record revenue earned but not yet billed (nor recorded).

d. To record expiration of prepaid insurance.

e. To record annual depreciation expense.

Short answer

Answer:

a. Unearned revenue

b. Accrued expenses

c. Accrued revenue

d. Prepaid expense

e. Accrued expense

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of prepaid expense

Prepaid expenses are those expenses that are paid in advance.

Correct option

1. The revenue is received in advance; hence, it is treated as unearned revenue.
2. The wages are due but not paid; hence this is treated as an accrued expense.
3. The revenue is earned but not received; hence this is treated as accrued revenue.
4. The insurance is prepaid; hence it is treated as prepaid expenses.
5. In this, depreciation expense is treated as an accrued expense.