Prepaid expenses are the expenses that have not yet incurred and have been paid in advance while the unearned revenues are the revenues against which services are yet to be provided but the amount has been received in advance. They are parts of the accrual basis of accounting and adjusted in the financial statements at the end of the accounting year. To prepare : 1) The entries for the transactions under the method that initially records the prepaid expenses and the unearned revenues in balance sheet accounts. Also, to pass the adjusting entries at the end of the year. 2) The entries for the transactions under the method that initially records the prepaid expenses and the unearned revenues in income statement accounts. Also, to pass the adjusting entries at the end of the year. 3) Explain why the alternative sets of entries in parts 1 and 2 do not result in different financial statement accounts.

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Chapter 3, Problem 6BPSB

To determine

Concept Introduction:

Prepaid expenses are the expenses that have not yet incurred and have been paid in advance while the unearned revenues are the revenues against which services are yet to be provided but the amount has been received in advance. They are parts of the accrual basis of accounting and adjusted in the financial statements at the end of the accounting year.

To prepare:

1) The entries for the transactions under the method that initially records the prepaid expenses and the unearned revenues in balance sheet accounts. Also, to pass the adjusting entries at the end of the year.

2) The entries for the transactions under the method that initially records the prepaid expenses and the unearned revenues in income statement accounts. Also, to pass the adjusting entries at the end of the year.

3) Explain why the alternative sets of entries in parts 1 and 2 do not result in different financial statement accounts.

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