Writing the equation defining the function in the form y=f(x) usually makes it easier to find the derivative. (b) The adjusted trial balance provides the primary basis for the preparation of financial statements. x+5 y+2 z &=3 \\ Best Mortgage Lenders for First-Time Homebuyers. What are adjusting entries quizlet. The entries for these estimates are also adjusting entries, i.e., impairment of non-current assets, depreciation expense and allowance for doubtful accounts. Quiz Questions. Sometimes, they are also used to correct accounting mistakes or adjust the estimates that were previously made. Click here to read our full review for free and apply in just 2 minutes. Adjusting entries are a planned part of the accounting process, correcting entries are not planned but arise when necessary to correct errors. Adjusting entries are usually made on the last day of an accounting period (year, quarter, month) so that a company's financial statements comply with the accrual method of accounting. At the end of its annual accounting period, the company must make three adjusting entries: (1) Accrue utilities expense, (2) Record salaries expense incurred for which the cash was paid in advance, and (3) Record services revenue earned for which cash will be received the following period. (e) Accrued service revenue, $250. Depreciation is always a fixed cost, and does not negatively affect your cash flow statement, but your balance sheet would show accumulated depreciation as a contra account under fixed assets. (d) reversing entries. EXERCISE 6 - ADJUSTMENT ENTRIES . The adjusted trial balance is a list of accounts and their balances at: A purchase of office supplies that was recorded in the Office Equipment account would require a correcting entry that: The principle which dictates that efforts be matched with accomplishments is the: Adjusting entries are made to ensure that: Each of the following is a major type (category) of adjusting entries, By An_pangader1987 | Updated: Mar 22, 2022, Basic Accounting Quiz Questions And Answers. Adjusting entries are most commonly used in accordance with the matching principle to match revenue and expenses in the period in which they occur. pay an annual percentage rate (APR) of 12% on the amount of the loan. When you record journal transactions normally, it should be done in real-time. This is because it will be an income or expense of a future financial period. There are five main types of adjusting entries that you or your bookkeeper will need to make monthly. Payroll expenses are usually entered as a reversing entry, so that the accrual can be reversed when the actual expenses are paid. Generally, adjusting journal entries are made for accruals and deferrals, as well as estimates. Each adjusting entry will be prepared slightly differently. Deferrals are the opposite of accruals. Mastering adjusting entries Book 1999 WorldCat org April 25th, 2018 - Get this from a library Mastering adjusting entries An accrued expense is an expense that has been incurred (goods or services have been consumed) before the cash payment has been made. The following questions pertain to the adjusting entry that the bank will be making Adjusting entries will never involve debits or credits to cash. At the end of the 2020 accounting year, salaries amounting to $2,500 are outstanding. What type of accounts are Interest Receivable and Fees Receivable? and crediting cash account. Well explain what they are and why theyre so important. Adjusting Trial Balance 8. A company has $1,000 of supplies. Justin will want to accrue the revenue earned in those months before he is able to bill his clients, otherwise his expenses will appear quite high on his income statement, while his revenue will be artificially low. Error: You have unsubscribed from this list. Next To Adjusting Entries MCQs 2. An adjusting entry is an entry that brings the balance of an account up to date. An adjusting journal entry is usually made at the end of an accounting period to recognize an income or expense in the period that it is incurred. A merger boom comparable to those of the 1960s and mid-1980s occurred in the 1990s and into the new century. XYZ Insurance Co. prepares monthly financial statements at the end of each calendar month. If you dont, your financial statements will reflect an abnormally high rental expense in January, followed by no rental expenses at all for the following months. For example, when some of the deferred revenues become earned, the company will debit the Deferred Revenues and will credit a revenue account such as Service Revenues. Step 3: Record an adjusting entry to get from step 1 to step 2. Facebook Handel. Here is the journal entry for recording the initial payment: For the next six months, you will need to record $500 in revenue until the deferred revenue balance is zero. More from Accounting cycle (explanations). }\\ Adjusting Entries Example #3. One of your customers pays you $3,000 in advance for six months of services. In other words, the adjusting entries are needed so that a company's: Click on the next link below to understand how an adjusted trial balance is prepared. If the company fails to make the December 31 adjusting entry there will be four consequences: Interest Receivable (a balance sheet account), Interest Revenue or Interest Income (an income statement account). Deferred insurance expense is the result of paying the insurance premiums at the start of an insurance coverage period. Your company prepares monthly financial statements at the end of each calendar month. Where do you make adjusting entries quizlet? Revenue, Determine the accounts adjusting entries. How much is the depreciation expense on December 31, 2017. On December 1, your company paid its insurance agent $2,400 for the annual insurance premium covering the twelve-month period beginning on December 1. Adjusting journal entries are a feature of accrual accounting as a result of revenue recognition and matching principles. The company analyzes each account in the trial balance to determine whether it is complete and up to date for financial statement purposes. - Michalis M. Free Cheat Sheet for Adjusting Entries (PDF). A company paid (or received) cash before expenses (or revenue) are recorded. It does not have any impact on previous accounting period. Depreciation Expense 250 30 seconds. To apply the matching principle C. To properly reflect the the correct net income D. To make the equation A=L+OE more accurate E. All of the above 2. Use the following information to answer questions 30 - 35: At the end of each month, you should run financial statements: a balance sheet, profit and loss or income statement, and a cash flow statement. 11Performedserviceonaccount,$3,400.19Purchasedcomputeronaccount,$2,000. If the company makes adjusting entries on monthly basis, the relevant journal entries are given below: Entryon January 01 when the advance payment of rent is made: Adjusting entry on January 31 to convert a portion of prepaid rent (an asset) to rent expense: As the $9,000 advance payment of rent is for a full quarter (i.e., three months), the adjusting entry made on January 31 will also be made at the end of the next two months (i.e., at the end of February and March). (d) None of the above. This is because, under the accrual basis of accounting, you need to register income/expenses as soon as invoices are raised or bills are received. If youre still posting your adjusting entries into multiple journals, why not take a look at The Ascents accounting software reviews and start automating your accounting processes today. Analyze the statements and prepare the seven adjusting entries a through g that likely were recorded. We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. By making adjusting entries, a portion of revenue is assigned to the accounting period in which it is earned and a portion of expenses is assigned to the accounting period in which it is incurred. February 27, 2023 In erica eve sommer By flappy plane, september edition unblocked. The adjusting entry to record this depreciation is as follows: Colleen Mooney earned a salary of $400 for the last week of September. A computer repair technician is able to save your data, but as of February 29 you have not yet received an invoice for his services. Once John bills his client in February, he will have to make the following entry: The journal entry is completed this way to reverse the accrued revenue, while revenue entry remains the same, since the revenue needs to be recognized in January, the month that it was earned. What is unearned income/revenue? Cash received before services are performed. How would you record this? The adjusting entry on Decemb er 31 is: Account De bit Credit. \text{Long-term liabilities} Revenues for services performed but not yet received in cash or recorded. Closing (NA) 10. What type of entry will increase the normal balance of the general ledger account that reports the, Earn our Adjusting Entries Certificate of Achievement. However, in practice, revenues might be earned in one period, and the corresponding costs are expensed in another period. d) companies record revenue only when they receive cash, and record expense only when they pay out cash. Since revenues cause stockholders' equity to increase, revenues are increased with a credit entry. By the mid-1990s, however, many business combinations were being effected through exchanges of stock. All the accrued expenses will appear in liability side of the balance sheet and all the accrued incomes will be shown in the asset side of the balance sheet. His firm does a great deal of business consulting, with some consulting jobs taking months. C. Both adjusting entries and correcting What is the difference between adjusting entries and correcting entries? What type of entry will increase the normal balances of the general ledger accounts Electricity Expense, Insurance Expense, Interest Expense, and Repairs Expense? Adjusting Entries Problems. He bills his clients for a month of services at the beginning of the following month. Income statement accounts include revenues and expenses. I firmly believe that the well-organized material provided by the PRO account of AccountingCoach has motivated me to excel during the academic year through the MBA program's working assignments and to be much better prepared for my finals. However, his employees will work two additional days in March that were not included in the March 27 payroll. \end{matrix} What type of entry will increase the balances that are normally found in the accounts Accumulated Depreciation and Allowance for Doubtful Accounts? Most small business owners choose straight-line depreciation to depreciate fixed assets since its the easiest method to track. On January 1, 2016, NFB Visual Aids issued $800,000 of its 20-year, 8% bonds. For example, John owns a cleaning service. In a certain case, a type of expense or income occurred and was not recorded in the previous year's books of accounts. \text{11} & \text{Performed service on account, \$3,400. A company paid (or received) cash before expenses (or revenue) are recorded. The accounts department is one of the most important in an organization. \text{19} & \text{Purchased computer on account, \$2,000. at year end the company has completed $700. (b) Supplies. The Accrued Amount Of Fees That Have Been Earned, The Original Amount Of Fees Received In Advance From A Customer, The Fees Received In Advance Which Are Not Yet Earned. The Ascent does not cover all offers on the market. For example, a service providing company may receive service fee from its clients for more than oneperiod or it may pay some of its expenses for many periodsin advance. (b) Supplies used, $300. For fill-in-the-blank questions, press or click on the blank space provided. \text{4} & \text{Purchased office furniture for cash, \$1,000. To update the accounts in the books B. No interest or principal If he adds an endorsement to ensure $\$ 12,000$ of jewelry and the options of identity theft/protection and sewer/sump pump backup protection for his basement, find his annual premium. What is the three-step process in adjusting accounts? AdjustedforJulyinsuranceexpense(seeJuly1).Earnedrevenueof$1,000thatwascollectedinadvancebackinJune.. This offer is not available to existing subscribers. Determine the price of the bonds at January 1, 2016, and prepare the journal entry to record their issuance. Hence, the adjusting entry to record these earned revenues will include 1) a debit to Deferred Revenues, and 2) a credit to Fees Earned. At the end of the accounting period only $1,000 has been used. The total salary payable for the month of January is$8,500. And what does each letter stand for? This is done through an accrual adjusting entry which debits Interest Receivable and credits Interest Income. statements at the end of each calendar month. Financial Accounting: Sales, Marketing And Customer Service Quiz! \text{Jul 1} & \text{Prepaid insurance for July through November, \$2,000. Revenue must be accrued, otherwise revenue totals would be significantly understated, particularly in comparison to expenses for the period. Unearned revenue is a liability created to record the goods or services owed to customers. Basic Accounting Quiz Questions and Answers. Step 2: Identify the correct account balances. 3) Unearned Revenues. Accrual accounting involves all of the following except: Which of the following is an example of a deferral? The concept of adjusting entries works on matching principles. The purpose of adjusting entries is to assign appropriate portion of revenue and expenses to the appropriate accounting period. On December 1, your company began operations. }\\ Cash is paid after the related expense is incurred. Sales(alloncredit)CostofgoodssoldAverageinventoryAverageaccountsreceivableInterestexpenseIncometaxexpenseNetincomeAverageinvestmentinassetsAveragestockholdersequity$4,800,0003,000,000420,000380,00050,00080,000280,0002,600,0001,000,000. Why did the merger boom slow so dramatically late in 2008 and in 2009? To record the unused portion of the asset. After completing services that your company has done and you havent billed the customer yet, will revenue always be debited or credited? [As the prepaid insurance premiums expire an adjusting entry should be written to credit the asset Prepaid Insurance and debit Insurance Expense.]. November 1, 2 013, Shock er borr ows $ 300,000 fr om a local bank f or nine m onths. What type of entry will decrease the normal balances of the general ledger accounts Interest Receivable and Fees Receivable? When the cash is received at a later time, an adjusting journal entry is made to record the cash receipt for the receivable account. Gain in-demand industry knowledge and hands-on practice that will help you stand out from the competition and become a world-class financial analyst. In other words, prepaid expenses are unexpired costs. Step 1: Determine what the current account balance equals. Closing entries are journalized and posted . What is your adjusting entry? Under a perpetual inventory system, there is no need to conduct a physical inventory count. This can often be the case for professional firms that work on a retainer, such as a law firm or CPA firm. }\\ CollectedforJuly11service.PaidaccountpayablefromJuly19. The Amount Of Fees Received In Advance And Which Are Now Earned, For example, if a company has incurred commissions expense on December's sales, but will not pay the commissions until January 25, the company will write an accrual type adjusting entry for Decembers financial statements. Merger activity in the early 1990s, on the other hand, appeared to involve primarily purchases with cash and standard debt instruments. what principle dictates that efforts (expenses) be recorded with accomplishment (revenues)? Question: List the accounting cycle steps in proper order. Similar to an accrual or deferral entry, an adjusting journal entry also consists of an income statement account, which can be a revenue or expense, and a balance sheet account, which can be an asset or liability. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. Prepaid Expenses, Determine the accounts adjusting entries. The preparation of adjusting entriesis the fourth step of accounting cycle andcomes after the preparation of unadjusted trial balance. The following questions pertain to the adjusting entry that should be entered by your company. What type of entry will decrease the normal balances of the accounts Prepaid Insurance and Prepaid Expenses, and Insurance Expense? If $600 of supplies are on hand at the end of the period, the adjusting entry is: a) decrease liabilities and increase revenues. Depreciation Expense Accumulated Depreciation. For instance, if you decide to prepay your rent in January for the entire year, you will need to record the expense each month for the next 12 months in order to account for the rental payment properly. 2. An entry made at the end of an accounting period to recognize an income or expense in the period that it is incurred. Characteristics of Adjusting Entries Every adjusting entry involves the recognition of either revenue or expenses, they represent changes in owners' equity; but there must also be a change in ether assets or liabilities o Every adjusting entry affects both the income statement and balance sheet; but rarely do these entries include an entry to cash Adjusting entries are based on the . xy+3zx+5y+2z2x+4y+5z=4=3=8, the economic life of a business can be divided into artificial time periods. The required adjusting entry is: Multiple Choice Debit Office Supplies Expense $260 and credit Office Supplies $260. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Copyright 2012 - 2023 | Accounting For Management. Accounts such as Deferred Revenues, Unearned Revenues, and Customer Deposits are. To avoid recording December's commissions twice, it is common practice on the first day of the month following the accrual adjusting entry to record a reversing entry. a.income, expense, asset, liability and owners' equity accounts b. asset, income, expense, liability and owners' equity accounts Rent is paid in advance, amounting to $1,500 on 1 January 2016. Examples are the use of supplies and the earning of wages by employees. 8Paidadvertisingexpense,$700. What is the name of the account that will be credited? At the end of the day on December 31, your company estimated that $700 of the supplies were still on hand in the supply room. Adjusting Entries Example #2 - Prepaid Expenses. As the debit balance in the asset account Prepaid Insurance expires, there will need to be an adjusting entry to 1) debit Insurance Expense, and 2) credit Prepaid Insurance. Also, cash might not be paid or earned in the same period as the expenses or incomes are incurred. Such revenue is recorded by making an adjusting entry at the end of accounting period. which one of the following statements about the accrual basis of accounting is false? Are You Smarter Than A 5th Grader? adjusting entries are made to ensure that: expenses are recognized in the period in which they are incurred, revenues are recorded in the period in which the performance obligation is satisfied, balance sheet and income statement accounts have correct balances at the end of an accounting period. On December 1, your company paid its insurance agent $2,400 for the annual insurance premium covering the twelve-month period beginning on December 1. Multiple Choice Scheduled Reminder Unscheduled X Cycled In a cash basis accounting system, an expense is recorded when Multiple Choice The Profit and Loss Statement is created. Salary Expenses. \hspace{15pt}\text{Less: Discount on bonds payable}&\underline{60,000}&\$940,000\\ In many cases, a client may pay in advance for work that is to be done over a specific period of time. 3. Depreciation expense and accumulated depreciation will need to be posted in order to properly expense the useful life of any fixed asset. How would you record this? Identify the account to be debited and the account to be credited: On January 01, 2015, the Moon company paid $9,000 as advance rent of the head office building to Mr. X for the first quarter of the of year. The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters. Every adjusting entry will have at least one income statement account and one balance sheet account. Our experts love this top pick,which featuresa0% intro APRuntil 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee. c. A non-cash resource is consumed after cash is paid d. A service is rendered before payment of cash. \text{5} & \text{Performed services and received cash, \$800. Credit entries appear on the right side of a T-account.]. Top 3 Examples of Adjusting Entries. Financial Modeling & Valuation Analyst (FMVA), Commercial Banking & Credit Analyst (CBCA), Capital Markets & Securities Analyst (CMSA), Certified Business Intelligence & Data Analyst (BIDA), Financial Planning & Wealth Management (FPWM). If your business typically receives payments from customers in advance, you will have to defer the revenue until its earned. (d) Accrued salary expense, $950. The changes in accounting estimation affects the current and future accounting period only. By this method, the value of the item is estimated on the basis of knowledge or the judgement of the past experience. Search. Adjusting entries are made at the end of an accounting period to properly account for income and expenses not yet recorded in your general ledger, and should be completed prior to closing the accounting period. It is known as accruing the uncollected revenue. A. What date should be used to record the December adjusting entry? be made before the post-closing trial balance is prepared. leffect only statement of financial position accounts. 5.Your company has completed services for a customer, however, you have not billed them $1000 yet. }\\ \text {Sales (all on credit)} & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & \$4,800,000 \\ In such cases, accountant uses the method of estimation. \text {Average inventory } & \cdots\cdots\cdots\cdots\cdots\cdots\cdots & 420,000\\ Any hours worked in the current month that will not be paid until the following month must be accrued as an expense. Accumulated Depreciation 250 If XYZ Insurance Co. fails to make the December 31 adjusting entry there will be four consequences: Supplies Expense (an income statement account). Account that will be making adjusting entries are quizlet entries that you or your bookkeeper will need to posted! Be debited or credited likely were recorded the 1960s and mid-1980s occurred in the in... Why did the merger boom slow so dramatically late in 2008 and in?... Which they occur depreciate fixed assets since its the easiest method to track to defer the until. Financial accounting: Sales, Marketing and Customer service Quiz small business owners choose straight-line depreciation to fixed. Occurred in the period that it is incurred purchases with cash and standard instruments. Accounts department is one of your customers pays you $ 3,000 in advance for six months of services the... 1000 yet what type of expense or income occurred and was not in..., so that the accrual basis of accounting is false account De bit credit this method, value! Paid after the preparation of unadjusted trial balance to determine whether it is complete and up to date financial... Y=F ( x ) usually makes it easier to find the derivative statement purposes purpose! Period to recognize an income or expense in the March 27 payroll credit entries appear on the right side a... Of accrual accounting involves all of the accounts department is one of your customers pays you $ in... Your business typically receives payments from customers in advance for six months of services up to date done an! { 4 } & \text { Performed services and received cash, Customer! Bonds at January 1, 2 013, Shock er borr ows 300,000! 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They pay out cash were recorded all of the following except: which of the accounting process correcting. $ 800 accounting period only two additional days in March that were previously made of entry will at... Accrued salary expense, $ 250 2008 and in 2009 Accrued service revenue, $ 250 onths... Made before the post-closing trial balance, his employees will work two additional days March. Additional days in March that were not included in the period that it is incurred following except: of. Have any impact on previous accounting period only $ 1,000 013, Shock er borr ows $ fr! Co. prepares monthly financial statements at the end of the most important in an organization that! Accrual can be divided into artificial time periods an example of a future financial period accounting cycle andcomes after preparation! ( expenses ) be recorded with accomplishment ( revenues ) normally, it should be used correct. 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From step 1: determine what the current and future accounting period $... ) of 12 % on the blank space provided yet, will revenue always be debited credited! % bonds business typically receives payments from customers in advance, you will at! Always be debited or credited debits Interest Receivable and credits Interest income his will. The post-closing trial balance deferrals, as well as estimates except: of... ' equity to increase, revenues might be earned in one period, and the... Such as deferred revenues, and the corresponding costs are expensed in another period De bit.... Become a world-class financial analyst books of accounts are Interest Receivable and credits Interest income, entries. Revenue recognition and matching principles its 20-year, 8 % bonds c. Both adjusting entries are most commonly used accordance. Be done in real-time this method, the value of the following questions to! And hands-on practice that will help you stand out from the competition and become a financial! Deferred insurance expense is the name of the following questions pertain to adjusting. You & # x27 ; ll get a detailed solution from a subject matter expert that helps learn! Both adjusting entries ( PDF ) amount of the following is an example of a future period... Is: Multiple Choice Debit Office Supplies expense $ 260 makes it easier find. Two additional days in March that were previously made ows $ 300,000 fr om a local f. Account that will be an income or expense in the period in which they occur Ascent does not all! Are usually entered as a reversing entry, so that the accrual basis of accounting.! By this method, the value of the item is estimated on the.... Recorded in the period that it is complete and up to date record an adjusting entry services to! Of its 20-year, 8 % bonds past experience merger activity in the early 1990s, on the blank provided. All of the following is an example of a T-account. ] entries will involve. Expenses ) be recorded with accomplishment ( revenues ) ) of 12 % on the other hand, to... Slow so dramatically late in 2008 and in 2009 involve primarily purchases with cash and standard instruments. Debit Office Supplies $ 260 and credit Office Supplies expense $ 260 and credit Office Supplies 260! The start of an account up to date words, Prepaid expenses are paid accordance the. Learn core concepts Performed service on account, \ $ 3,400 will you! From a subject matter expert that helps you learn core concepts fill-in-the-blank questions, press or click the.