Question

QS 3-15 Recording and analyzing adjusting entries LO P1, P2, P3, P4 Adjusting entries affect at least one balance sheet account and at least one income statement account. For the entries below, identify the account to be debited and the account to be credited. Indicate which of the accounts is the income statement account and which is the balance sheet account. Assume the company recorded prepayments of expenses in asset accounts, and cash receipts of unearned revenues in liability accounts. a. Entry to record revenue earned that was previously received as cash in advance. b. Entry to record wage expenses incurred but not yet paid (nor recorded). c. Entry to record revenue earned but not yet billed (nor recorded). d. Entry to record expiration of prepaid insurance. e. Entry to record annual depreciation expense.

Answer 1

Answer: a) Debit to liability account and a credit to Income account b). Debit to wages expenses and a credit to wages payable liability account c). Debit to revenue receivable account and a credit to income account d). Debit to insurance expense account and a credit to prepaid insurance (asset account) e) debit to depreciation expense account and a credit to accumulated depreciation account

Explanation: The accounting formula is Assets + Expenses = Capital + Liability + Income.

To increase asset or expense you debit while you credit it to reduce the amount. Whereas to increase the capital, liability or income account you credit it while you debit it to reduce it.