Question

Is each of the following an accrued revenue, an accrued expense, an unearned revenue, or a prepaid expense?

a. A manufacturer pays its employees on the first and third Friday of every month. By the end of the period, employees have worked four days since the last pay period.
b. An architect designs a building for a company, agreeing to bill at an hourly rate and receive payment upon completion. At the end of the year, the design is still in progress.
c. A firm pays in advance for monthly rental of a delivery truck.

Answer 1

a. The manufacturer paying employees every two weeks is an example of an accrued expense. b. The architect billing at an hourly rate and not receiving payment upon completion is an example of unearned revenue. c. The firm paying in advance for monthly truck rental is an example of a prepaid expense.

Step-by-step explanation:

a. The manufacturer pays its employees every two weeks, which means that by the end of the period, employees have worked four days since the last pay period. This is an example of an accrued expense. The expense has been incurred but has not yet been recorded or paid.

b. The architect has agreed to bill at an hourly rate and receive payment upon completion. However, at the end of the year, the design is still in progress. This is an example of unearned revenue. The revenue has not yet been earned or received.

c. The firm pays in advance for monthly rental of a delivery truck. This is an example of a prepaid expense. The expense has been paid in advance before it is actually incurred or used.