Question

Which of the following types of accounts do NOT require an adjusting entry?

1) Unearned revenues
2) Accrued expenses
3) Prepaid expenses
4) None of these choices are correct.

Answer 1

Unearned revenues do not require an adjusting entry, while the accrued expenses and the prepaid expenses usually do to require adjusting entries. An adjusting entry is made to recognize the expense and update the records accordingly.

Step-by-step explanation:

Adjusting entries are made to update the financial records and ensure that revenues and expenses are recognized in the correct accounting period. While all the listed types of accounts often require adjusting entries, there is one type that usually does not require an adjusting entry, and that is unearned revenues. Unearned revenues are amounts received in advance from customers for goods or services that are yet to be delivered. Since the revenue has not yet been earned, there is no need for an adjusting entry.

On the other hand, both accrued expenses and prepaid expenses typically require adjusting entries. Accrued expenses are expenses that have been incurred but not yet paid or recorded. An adjusting entry is made to recognize the expense and update the records accordingly. Prepaid expenses, on the other hand, are expenses that have been paid in advance but have not yet been incurred. An adjusting entry is made to allocate the prepaid expense to the appropriate accounting period.