Question

explain adjusting entry and the four different types of adjustments. choose which of the four types of adjustments would be appropriately chosen for a major retail company? insurance company? food company? explain.

Answer 1

Account adjustments, also known as adjusting entries, are entries that are made in the general journal at the end of an accounting period to bring account balances up-to-date.In accrual basis of accounting, adjusting journal entries are necessary because the exchange of cash does not always occur at the moment you purchase an item, provide services or incur an expense.

An accrued revenue is one that occurs when a sale is made or services are performed in one accounting period but payment is not received until a later period.It is commonly used in the service industry, where contracts for services may extend across many accounting periods.

An accrued expense is an expense that has occurred in one accounting period but won't be paid until another period. Accrued expenses are recognized on the books when they are incurred, not when they are paid.

A deferred revenue or unearned revenue is the cash you receive for services you have not yet performed, or items you have not yet delivered. Unearned revenue is recognized as a liability until you deliver the item or perform the service.

A deferred expense or prepaid expense is an expense that has been paid in advance and will be expensed out at a later date.

Adjusting entries as per segment

1. Major Retail Company -

Accrued Revenue - Sale of goods payment received in next accounting year

Accrued Expenses - Purchase of goods on credit

Unearned Revenue - Advance received on sale of goods, where goods are not transferred in the present accounting year

Prepaid Expense - Insurance on goods

2. Insurance Company :

Accrued Revenue - Premium receivable from customer accrued in one accounting year received in another.

Accrued expenses - Claims raised by customers payable

3. Food Company

Accrued Revenue - Sale of food/service, payment received in next accounting year

Accrued Expenses - Purchase of raw material on credit

Unearned Revenue - Advance received on sale of goods, where goods are not transferred in the present accounting year

Prepaid Expense - Insurance on factory / restaurant etc