Q. 3-8RQ - Horngren'S Financial And Managerial Accounting

Question

What are the two basic categories of adjusting entries? Provide two examples of each.

Step-by-Step Solution

Answer

Accrued revenues and accrued expenses. Accrued revenues includes Accrued service revenue and Accrued interest revenue. Accrued expense includes accrued interest expense and Accrued salaries.                                

Explanation on Accrued Revenues

Accrued revenues refers to the revenues which earned but cash has not been received for the same. 

Accrued service revenue indicates the revenue in which services has been provided but cash has not been received. 

Accrued interest revenue indicates the revenue earned by way of interest and cash has not been received for the same.

Explanation on Accrued Expenses

Accrued expenses indicates the expenses that are incurred during the period, but remains unpaid. 

Accrued salaries expense refers to the amount owed to the employees of the business, which are unpaid. 

Accrued interest expense refers to the interest expenses that are incurred and will be paid later to the creditors.