Final answer:
Adjusting journal entries are used to reflect accrued expenses, prepaid expenses, depreciation, or unearned revenue in a company's financial statements. The correct explanation would match the entry's accounts affected by the common scenarios associated with each term.
Step-by-step explanation:
The query pertains to the determination of the correct explanation for a given adjusting journal entry, which could relate to one of several accounting concepts: accrued expenses, prepaid expenses, depreciation, or unearned revenue. In accounting, an adjusting journal entry is made in the financial statements to reflect the earnings and obligations of a business during a particular period, ensuring the revenues and expenses are matched according to the accrual basis of accounting.
An entry for accrued expenses is used to recognize expenses that have been incurred but not yet paid or recorded at the end of an accounting period. Prepaid expenses are expenses paid in advance and require an adjustment as they are used or expire. Depreciation relates to the allocation of the cost of a tangible fixed asset over its useful life. Finally, unearned revenue refers to money received for goods or services not yet delivered, and the adjusting entry would transfer the amount from liability to revenue as the goods or services are provided.
Without the specifics of the journal entry, the selection of the best explanation is based on common scenarios for each. Typically, accrued expenses involve debiting an expense account and crediting a liability account. Prepaid expenses usually involve debiting an expense account while crediting an asset account. Depreciation typically involves debiting depreciation expense and crediting accumulated depreciation. Lastly, unearned revenue involves debiting a liability account and crediting a revenue account as revenue is earned over time.