FAR 1.8 - Adjusting Journsl Entries

Question 1

Cash is received before revenue is earned

Answer 1

Unearned (deferred) revenues

Question 2

Cash is paid before the expense is incurred

Answer 2

Prepaid (deferred) expense

Question 3

Cash is received after the revenue has been earned

Answer 3

Accrued revenues (receivables)

Question 4

Cash is paid after the expense has been incurred

Answer 4

Accrued expenses

Question 5

What are three rules of adjusting journal entries?

Answer 5

1. Must be recorded by the end of the entity’s fiscal year before the preparation of the financial statements
2. Never involve a cash account
3. Hit one income statement account and one balance sheet account