Adjusting entries and how the three statements tie together. Endless random questions.
Every question you miss or reveal is saved here with its answer. Redo them: a question leaves the list once you get it right.
Ending RE = Beginning RE + Net income − Dividends. Indirect operating cash flow starts at net income, adds back depreciation, subtracts increases in current assets and adds increases in current liabilities.
| Adjustment | Type | Entry | Missed it? |
|---|---|---|---|
| Prepaid expense used up | Deferral | Dr Expense / Cr Prepaid asset | NI and assets overstated |
| Unearned revenue earned | Deferral | Dr Unearned Revenue / Cr Revenue | NI understated, liabilities overstated |
| Expense incurred, not paid | Accrual | Dr Expense / Cr Payable | NI overstated, liabilities understated |
| Revenue earned, not billed | Accrual | Dr Receivable / Cr Revenue | NI and assets understated |
| Depreciation | Allocation | Dr Depreciation Expense / Cr Accumulated Depreciation | NI and assets overstated |
Adjusting entries hit one income statement account and one balance sheet account. They never touch Cash.