“I don’t understand,” complained Chris, who responded to your bulletin board posting for tutoring in introductoryaccounting. The complaint was in response to your statements that recording adjusting entries is a critical stepin the accounting processing cycle, and the two major classifications of adjusting entries are prepayments andaccruals.Required:Respond to Chris.1. When do prepayments occur? Accruals?2. Describe the appropriate adjusting entry for prepaid expenses and for deferred revenues. What is the effecton net income, assets, liabilities, and shareholders’ equity of not recording a required adjusting entry forprepayments?3. Describe the required adjusting entry for accrued liabilities and for accrued receivables. What is the effecton net income, assets, liabilities, and shareholders’ equity of not recording a required adjusting entry foraccruals?
“I don’t understand,” complained Chris, who responded to your bulletin board posting for tutoring in introductory
accounting. The complaint was in response to your statements that recording
in the accounting processing cycle, and the two major classifications of adjusting entries are prepayments and
accruals.
Required:
Respond to Chris.
1. When do prepayments occur? Accruals?
2. Describe the appropriate adjusting entry for prepaid expenses and for deferred revenues. What is the effect
on net income, assets, liabilities, and shareholders’ equity of not recording a required adjusting entry for
prepayments?
3. Describe the required adjusting entry for accrued liabilities and for accrued receivables. What is the effect
on net income, assets, liabilities, and shareholders’ equity of not recording a required adjusting entry for
accruals?
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