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 nature of each transaction.
a. To record revenue earned that was previously received as a cash advance: This indicates that revenue was received in advance. This transaction is an example of unearned revenue (UR). Unearned revenue refers to the situation where a company has received payment in advance for goods or services that it is yet to deliver.
b. To record annual depreciation expense: This transaction refers to depreciation, which is the gradual decrease in the value of long-term assets over time. Depreciation is related to the use of an asset and is classified as a prepaid expense (PE). Prepaid expenses relate to an expenditure made in advance for which the benefits are yet to be realized over time.
c. To record wages expense incurred but not yet paid (nor recorded): This transaction indicates that wages have been incurred but not yet paid. It represents an accrued expense (AE). Accrued expenses are expenses that have been incurred but not yet recorded or paid. These expenses are recognized in the accounting records to reflect the obligations the company has incurred.
d. To record revenue earned but not yet billed: This transaction indicates that revenue has been earned but has not yet been invoiced or billed to the customer. It refers to accrued revenue (AR). Accrued revenue represents revenue that has been earned but not yet recorded or received in cash.
e. To record the expiration of paid insurance: This transaction indicates that the insurance coverage period has ended. It represents the expiration of a prepaid expense (PE). Prepaid expenses, such as insurance, are initially recorded as assets when payment is made in advance but are gradually expensed over their useful life or coverage period.
To summarize:
a. Unearned revenues (UR)
b. Prepaid expenses (PE)
c. Accrued expenses (AE)
d. Accrued revenues (AR)
e. Prepaid expenses (PE)