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.

a. Entry to record revenue earned that was previously received as cash in advance.

Debit Unearned Revenue

Credit Revenue

Revenue is an Income Statement account.

Unearned Revenue is a Balance Sheet account

b. Entry to record wage expenses incurred but not yet paid (nor recorded).

Debit Wages Expenses Account

Credit Wages Payable Account

Wages Expense is an Income Statement account.

Wages Payable is a Balance Sheet account.

c. Entry to record revenue earned but not yet billed (nor recorded).

Debit Accounts Receivable

Credit Revenue

To record revenue earned.

d. Entry to record expiration of prepaid insurance:

Debit Insurance Expense

Credit Prepaid Insurance

To record insurance expense for the period.

e. Entry to record annual depreciation expense:

Debit Depreciation Expense

Credit Accumulated Depreciation

To record depreciation charge for the month.

Explanation:

The adjustment of expenses and income is important in order to base the financial statements on the accrual concept and the matching principle. The cash basis records transactions when cash is exchanged, rather than when the contract becomes effective.

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