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Summary of Adjusting Entries quiz #1

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  • What is the purpose of adjusting entries in accrual accounting, and why are they necessary at the end of an accounting period?
    Adjusting entries ensure that revenues and expenses are recorded in the period in which they are earned or incurred, matching income and expenses accurately and providing a true financial picture at period end.
  • How are prepaid expenses recorded and adjusted over time in accrual accounting?
    Prepaid expenses are initially recorded by debiting a prepaid account and crediting cash. As the benefit is used, an expense is debited and the prepaid account is credited to recognize the expense over time.
  • Describe the accounting treatment for supplies from purchase to adjustment for usage.
    When supplies are purchased, supplies are debited and cash is credited. As supplies are used, supplies expense is debited and supplies are credited to reflect the amount consumed.
  • What is the process for recording and adjusting unearned revenues?
    Upon receiving cash for unearned revenues, cash is debited and unearned revenue (a liability) is credited. When the service or goods are delivered, unearned revenue is debited and revenue is credited.
  • How are accrued expenses recognized and settled in the accounting records?
    Accrued expenses are recognized by debiting the expense and crediting an accrued liability. When payment is made, the accrued liability is debited and cash is credited.
  • Explain how depreciation is recorded for long-term assets in accrual accounting.
    Depreciation is recorded by debiting depreciation expense and crediting accumulated depreciation, spreading the asset's cost over its useful life and reducing its book value.
  • What is the main purpose of adjusting entries in accrual accounting at the end of an accounting period?
    Adjusting entries ensure that revenues and expenses are recorded in the correct period, matching income and expenses to provide an accurate financial picture.
  • How are prepaid expenses initially recorded and then adjusted as the benefit is used over time?
    Prepaid expenses are initially recorded by debiting a prepaid account and crediting cash; as the benefit is used, an expense is debited and the prepaid account is credited.
  • Describe the accounting treatment for supplies from the time of purchase to the adjustment for supplies used.
    When supplies are purchased, supplies are debited and cash is credited; as supplies are used, supplies expense is debited and supplies are credited to reflect the amount consumed.
  • How is depreciation for long-term assets recorded in accrual accounting?
    Depreciation is recorded by debiting depreciation expense and crediting accumulated depreciation, spreading the asset's cost over its useful life and reducing its book value.
  • What is the main difference between accrual and deferral adjustments in financial accounting?
    The main difference is that accrual adjustments recognize revenues and expenses before cash is exchanged, recording them when they are earned or incurred, while deferral adjustments postpone recognition of revenues or expenses until after cash has been exchanged, adjusting previously recorded amounts as time passes or services are performed.