Question

. Recording the adjusting entry for depreciation has the same effect as recording the adjusting entry for

A. Unearned revenue

B. Prepaid expense *correct

C. Accrued revenue

D. Accrued expense

Please explain why B is correct

Answer 1

Answer: B. Prepaid expense

For Prepaid Expense adjusting entry

Expense a/c                      Dr.

       To Prepaid Expense

For Depreciation adjusting entry

Depreciation expense a/c        Dr.

          To Accumulated Depreciation

In both the cases Asset is created by making payment upfront which is charged to the Revenues with passage of time or through use and consumption .

Incase of Unearned Revenue Liability is created which is considered revenue as and when services are performed

Incase of Accrued revenue cash is yet to be received and Accrued expense no asset is created.