3b Adjusting entries: Prepaid expenses and unearned

revenue
Wednesday, April 19, 2017 11:24 PM

Adjusting entries
• Prepaid expenses
○ Expenses paid in cash benefit more than one accounting period
§ Insurance paid in the beginning of the year for the entire year
§ Prepaid expenses -> not an expense account
○ Current Asset account
○ Record initial prepaid expense get recorded
§ Debit prepaid expense
□ Asset
□ Debit an asset -> increases
§ Credit cash
□ Credit Asset account -> Goes down
○ Adjusting entry needed
§ Debit expense
□ Debit an expense -> increasing
§ Credit prepaid expense
□ Credit asset-> goes down

Unearned revenues
• Cash which business received before revenue has been earned
• How recorded
○ Debit cash
○ Credit unearned revenue
§ Reflect liability
• Liability