We have learned about four types of adjustments: (1) prepaid expenses, (2) unear

Question

We have learned about four types of adjustments: (1) prepaid expenses, (2) unearned revenues, (3) accrued revenues, and (4) accrued expenses.

Select one specific adjusting entry that falls under one of the four types, enter it in the subject box, and post the following:

1. A description of the adjustment and why it is necessary.

2. Provide an example of the transaction (tell a story about it!); include the debit and credit, with dates and amounts in the proper journal entry format.

X.......

X............

3. In your replies discuss the status of the accounts affected prior to the adjustment (understated or overstated), and explain the impact of the adjustment on the financial statements.

Post your initial response, read all of the posts, and post two detailed replies to at least two other student's posts. If you do not respond to at least two students, you will receive a half credit. Do not use any outside sources. No references to the internet (otherwise I will not give any points for this post). This is your own words, and what you have learned from the book/Cengage exercises.

Follow the minimum requirements for discussion board posts located in the general discussion area. Recall, those are the minimum requirements, more posts are always encouraged.

Explanation / Answer

Solution Query Prepaid Expenses 1 For a Financial year, we have to charge only those expenses which relates to that financial year. So, if an expense is paid for the period which is for the next period to the financial year, we have to make adjustment for that expense. This expense is Known as Prepaid Expense. 2 Example: A & Co. paid Insurance forn the period from 1st july,2017 to 30th June,2018 of rs.20000. Assume year ends on 31st Dec. Here, the Financial Statements will be prepared as on 31st dec,2017. But here, expense of insurance relates to the next year also. So for the amount paid for the period from 1st jan,2018 to 30th june,2018 will be treated as Prepaid Expense and Adjustment will be made for it. Journal Date Particulars Debit Credit 2017 Jul-01 Insurance A/c                                                            Dr 20000                              To Bank A/c 20000 (Being Insurance Paid) 31-Dec Prepaid Insurance A/c                                    Dr 10000                                 To Insurance A/c 10000 (Being Adjustment entry made for Prepaid Insurance) 3 **In case, we do not make this adjustment, then profits will be understated for the period ending 31st dec,2017 by 10000 and profits will be over stated by 10,000 during the period ending 31st dec,2018. ***Also, By making such Adjustment, Current Assets will be increased by 10000 and the profit will also increased by 10000

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