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 previouslu received as cash advance.
b.___ to record annual depreciation expense.
c. to record wages expense incurred but not yet paid(nor recorded).
d. to record revenue earned but not yet billed
e. to record expiration of paid insurance.
To classify the adjusting entries, we need to understand the different types of adjusting entries:
1. Prepaid Expenses (PE): These are expenses paid in advance, but the benefit or service is not yet received.
2. Unearned Revenues (UR): These are revenues received in advance, but the goods or services are not yet delivered.
3. Accrued Expenses (AE): These are expenses incurred but not yet paid or recorded.
4. Accrued Revenues (AR): These are revenues earned but not yet received or recorded.
Now let's classify the given adjusting entries:
a. To record revenue earned that was previously received as cash advance.
In this case, the revenue was previously received as cash, which indicates that it is an unearned revenue (UR) because the service has not yet been provided. Therefore, the classification is UR.
b. To record annual depreciation expense.
Depreciation expense is an allocation of the cost of an asset over its useful life. Since this entry does not involve any prepaid expense or unearned revenue, it is not PE or UR. Instead, it is an expense that has been incurred but not yet paid or recorded, making it an accrued expense (AE).
c. To record wages expense incurred but not yet paid (nor recorded).
This entry represents wages expense that has been incurred but not yet paid or recorded. Therefore, it is an accrued expense (AE).
d. To record revenue earned but not yet billed.
The revenue has been earned but not yet billed, meaning it is an accrued revenue (AR). The revenue will be recognized once the service has been rendered, even without billing.
e. To record expiration of paid insurance.
This entry represents the expiration of a prepaid expense. The insurance was paid in advance and is now expiring, meaning it is a prepaid expense (PE).
In summary, the classifications for the adjusting entries are as follows:
a. UR (unearned revenue)
b. AE (accrued expense)
c. AE (accrued expense)
d. AR (accrued revenue)
e. PE (prepaid expense)