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. Responses to Classmates: Please provide your classmates with one additional example of an accrued expense adjustment and an accrued revenue adjustment. Response to Instructor: Please check your thread for questions or comments from me and be sure to provide a comprehensive response, as requested. Writing: Please make sure that your initial post contains a properly cited reference. Please use APA style. You should cite your text as a minimum. Additionally, check your spelling and proofread your post before you hit the submit button.

Answer 1

Question 1:

Accrued expenses result in accrued liabilities. Accrued expenses are those that have been incurred in the accounting period, but have not been paid by the entity. We will need to record such expenses. The payment will be made in near future. We need to do such adjustments, because in accounts, the expense must be recorded and recognized as a expense in the year it is incurred and not in the year it is paid. The best example can be of Salaries expense, which accrues with passage of time.

The adjustment entry is Debit Salaries Expense and Credit Salary Payable.

Question 2:

An accrued revenue is a revenue that the entity has earned or a sale that has taken place and billed, but the money from the debtor has not been received or collected. It will be collected in the near future. We need to do such adjustments, because in accounts, that the revenue must be recorded and recognized as a revenue in the year it is earned and not in the year when we receive the money for it.

For example, Interest revenue also accrues with passage of time, hence the adjustment entry is Debit Interest Receivable and Credit Interest Revenue.

Question 3:

Unearned Revenue is money received from a customer for work to be performed in the future. In other sense, money has been received from customer for work that has not been done yet. The Company need to recognize this as a liability as the entity owes the customer for work which has not been done yet. The company will not recognize this as a revenue until the work is done.

The initial entry is Debit to Cash A/c and Credit Unearned Revenue A/c. If any service is performed by year end, the adjustment entry is Debit Unearned Revenue A/c to Sales (Service Revenue) A/c.

Additional examples of Accrued expenses: Debit Accrued Interest and Credit Interest Payable

Additional examples of Accrued revenue: Debit Accounts Receivable and Credit Service Revenue