Question

Which of the following situations describe an accrued revenue, an accrued expense, an unearned revenue, or a prepaid expense?

1) Accrued revenue
2) Unearned revenue
3) Prepaid expense
4) Accrued expense

Answer 1

Accrued revenue is income earned but not received, unearned revenue is payment received for services not yet performed, prepaid expense is payment made for future goods or services, and accrued expense is an expense incurred but not paid.

Step-by-step explanation:

The student's question relates to the understanding of different types of revenues and expenses in accounting:

• Accrued revenue is income that has been earned but not yet received. For example, a company providing services in December that will not be billed until January has accrued revenue.
• Unearned revenue refers to money received by a company for services or products that have not yet been delivered or performed. This is considered a liability until the service or product is delivered, like receiving a payment for a one-year service contract.
• Prepaid expense is a payment made in advance for goods or services that are to be received in the future. For instance, an insurance premium paid at the beginning of the coverage year is a prepaid expense.
• Accrued expense is an expense that has been incurred but not yet paid. A common example is interest that has been accumulated on a loan but the payment has not been made as of the statement date.