Duncan Services Records Prepaid Expenses as Expenses When Incurred, and Unearned

question 61

Essay

Duncan Services records prepaid expenses as expenses when incurred, and unearned revenues as revenues when the payment is received in advance. At the end of the year, Duncan makes the necessary adjustments based on accrual basis accounting. On July 1, Duncan paid rent for an office in the amount of $24,000 for the period July 1 through June 30 of the following year. Provide the year-end adjusting entry for rent prepayment.

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Definitions:

Spending

The process of spending money to buy goods or services.

Income

The amount of money received over a period of time through work, business, investments, or other sources.

Goods

Tangible items that satisfy human wants or needs and are available for purchase.

Maximizing Utility

The economic principle that individuals seek to obtain the greatest satisfaction or utility from their consumption choices within their income constraints.