Chapter 3, Problem 3QS

To determine

Prepaid Expenses: Prepaid expenses refer to those expenses which are paid in advance, the benefit of which will be received in near future. For example, rent for six months paid in advance.

Unearned Revenue: Unearned revenue occurs when payment for goods and services are received in advance, that is, company receives money before actual delivery of goods and services. As a result, the unearned revenue represents the liability of the company.

Accrued Expenses: Accrued expenses are the expenses recognized in the books of account before making the actual payment. As per accrual system of accounting, expenses are recorded in the period when they are incurred, thereby creating a liability on the company.

Accrued Revenues: Accrued revenues are the revenues earned by the company but not received in actual. It means goods or services have been provided by the company but it is yet to receive its payment, thereby constitute current liabilities of the company.

To identify: Whether the given entry involves prepaid expenses, unearned revenue, accrued expenses and accrued revenues.