Prepaid and Supplies
What is a prepaid expense?
Expense paid in cash and recorded as assets before they are used or consumed
Type of equipment, the estimated useful life.
What is unearned revenue
What are accrued revenues?
A company provides services. On December 31, the company realized it completed 700 dollars worth of work for a customer but forgot to issue the invoice. No entry was recorded at the time the work was completed. What adjustment should the company make on December 31?
Debit Accounts Receivable $700
Credit Revenue $700
How do we record prepaid expense in the accounting system when paid?
When paid, debit prepaid expense and credit cash.
What is deprecation rate
Deprecation rate is the percentage amount that an asset depreciates each year
Two types of unearned revenue?
Prepaid insurance/subscription service
What are accrued expenses?
An expense in one accounting period but was not paid until a later accounting period.
A gym offers monthly memberships. On December 31, the gym found out that they collected 300 in advance on December 1 for 12 months of membership fees but recorded the entire amount as revenue. What adjusting entry should the studio make on December 31 to correct the mistake?
Debit Revenue 300
Credit Unearned Revenue 300
How do changes in prepaid expenses affect the cash flow statement?
When prepaid expenses increase, cash flow decreases and vice versa.
What happens if an asset is used past its useful life
There is no deprecation expense for those additional years.
When a service or product is delivered how would you record it in the journal?
Debit unearned revenue
Credit revenue
What is the opposite of Accrued Revenue? Hint: It's another category
Unearned revenue
A company is renting an office space for 2100 a month and the rent is paid on the first of each month. On December 31st the company has not yet recorded the rent expense for December. What adjusting entry should they make for December 31st?
Debit Rent expense 2100
Credit Rent Payable 2100
If a company has taken rent in advance for six months, how much of that amount can be recognized as expense each month and how will this affect the financial statement?
When you pay, Debit Prepaid expense and Credit cash. With monthly expense recognition, debit rent expense and credit prepaid rent.
What are the consequences of inaccurate deprecation
It can misrepresent a company's financial statement.
What kind of impact and where does unearned revenue have on a financial statement?
Balance sheet as a liability
What sheet has accrued revenue as an asset?
Balance sheet
A landscaper received 850 in advance for services provided in January 2025, as of December 31st no service has been provided. What will the adjusting entry look like?
Debit Cash 850
Credit Unearned Revenue 850
How can a large prepaid expense impact a year end financial ratio of the company?
A large prepaid expense increases the current ratio by adding to assets but decreases the quick ratio because it is not cash. It also reduces cash flow, affecting short-term finances.
What are some deprecation methods
Straight line, double declining balance, unit of production and sum of digit years
What happens if unearned revenue is not recognized correctly?
Misstated financial statements
What account is often recorded along side accrued revenue?
Accounts receivable
A company has 1000 dollars of supplies on hand at the end of the month. But the supplies account shows a balance of 1600. What adjusting entry should the company make?
Debit supplies expense 600
Credit supplies 600