SOME ADJUSTING ENTRIES CLARIFIED

PREPAYMENTS

Prepaid Expenses•Expenses paid in cash and recorded as assets before they are used or consumed•i.e. prepaid rent, prepaid insurance

Unearned Revenues•Cash received and recorded as a liability before revenue is earned•Can also be referred to as future revenues•i.e. unearned gift certificate sales, unearned consulting revenue

ACCRUALS

• Accrued means accumulateAccrued Expenses• Expenses incurred but not yet paid in cash or recorded• Can also be referred as accrued liabilities• i.e. Interest, rent, property taxes, salariesAccrued Revenues• Revenues earned but not yet received in cash or

recorded• Can also be referred as accrued receivables• May accumulate with the passage of time• i.e. interest revenue or rent revenue

SUMMARY OF BASIC RELATIONSHIPS

AMORTIZATION

• Don’t forget adjustments must also be made for amortization• Amortization is also called depreciation