Question

Chapter 3:  The Adjusting Process (Continued)

1. Please explain what accrued expenses are and let us know why these adjustments are necessary. Please provide an example of an adjusting entry for an accrued expense.

2. Please explain what accrued revenues are and let us know why these adjustments are necessary. Please provide an example of an adjusting entry for accrued revenues.

3. Please explain what an Unearned Revenue account is and why an adjustment may be necessary for Unearned Revenue. Please provide an example of an adjusting entry for Unearned Revenue.

Answer 1

Answer#1:-

Accrued Expenses:- Accrued expenses are those periodic expenses that has been inccured and due over accounting period but concerned payment has not been done during accounting period. It is an outstanding cost that are payable in current accounting period and treated as liability.

Example:- Suppose rent expenses is $2000 per month . Therefore $24000 would annual rent expenses for accounting period .If 2 month's rent(4,000) hasn't paid in accounting period ,It would be accrued rent expenses for period and Adjusting Journal entry would be

Debit: Rent Expenses ($2000*2)...$4,000

Credit: Rent payable ....................$4,000

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​​​​​​Answer#2:-

Accured Revenue:-Revenue that has been earned means it's related contract obligation has been executed but concerned amount has not received yet . Accrued revenue are treated as current year income and included in current year income statement.

Example:- Service amounts to $24,000 has been provided to client in current accounting year but client didn't pay $24,000 at end of year . Service revenue of $24000 has been treated as Accrued Revenue and It's adjusting entry would be :

Debit : Accounts Receivable....$24,000

Credit:Service Revenue...........$24,000

​​​​Answer #3:-

Unearned Revenue: It is an opposite transactions of Accrued revenue. Unearned revenue are amount that has been received in advance from customers but it's concerned obligation would be executed in future. This is a liability for business that would executable in future . This would not be treated as income until obligation has been executed.

Example:- Suppose a client contracted with service provider for good delivery in next year and paid $1000 in advance .This $1000 treated as unearned service revenue for current year and adjusting entry would be

Debit: Cash................... .....$1,000

Credit: Unearned Service Revenue... $1000

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