Std. vs. Expedient -
ADJUSTING JOURNAL ENTRIES
Prepayments/Deferrals
 Cash flows that occur BEFORE
expense and revenue recognition
 Portion that applies to future
periods is deferred as a prepaid
expense or unearned revenue
1
Std. vs. Expedient -
Adjusting Entries for
Prepayments/Deferrals
 Recording Methods
– Specific accounting policy of the entity
 Standard vs. Expedient
– Either method is acceptable
– Nature of adjusting entries will differ dependent
on the original recording approach
2
Std. vs. Expedient -
PREPAYMENTS/DEFERRALS
Standard
Recording Method
Records an asset upon payment of cash
and liability upon receipt of cash
before goods or services are provided
– Cash paid recorded as an asset (Prepaids)
– Cash received recorded as liability
(Unearned revenue)
3
Std. vs. Expedient -
Prepayment - Example
Standard Method
On 12/1/X5, your company paid $1,200 for a sixmonth insurance policy. The $1,200 was
recorded as Prepaid Insurance (an asset).
What AJE is needed on 12/31/X5?
GENERAL JOURNAL
Date
Description
Page: 1
PR
31-Dec Insurance Expense
Prepaid Insurance
Debit
Credit
200
200
4
Std. vs. Expedient -
Collection in Advance - Example
Standard Method
On 11/1/X5, your company received $2,400
for a six-month rental of our excess
warehouse space. The $2,400 was
recorded as Unearned rental revenue (a
liability).
What AJE is needed on 12/31/X5?
GENERAL JOURNAL
Date
Description
Page: 1
PR
31-Dec Unearned rental revenue
Rental revenue
Debit
Credit
800
800
5
Std. vs. Expedient -
Here comes something
that’s A LITTLE BIT
DIFFERENT!
6
Std. vs. Expedient -
PREPAYMENTS/DEFERRALS
Expedient
Recording Method
Records an expense upon payment of cash
before goods or services are consumed
Records revenue upon receipt of cash before
goods or services are provided
7
Std. vs. Expedient -
Prepayment Example
Expedient Method
On 12/1/X5, your company paid $1,200 for a
six-month insurance policy. The $1,200 was
recorded as Insurance expense.
What AJE is needed on 12/31/X5?
GENERAL JOURNAL
Date
Description
Page: 1
PR
31-Dec Prepaid Insurance
Insurance expense
Debit
Credit
1,000
1,000
8
Std. vs. Expedient -
9
Collection in Advance - Example
Expedient Method
On 11/1/X5, your company received $2,400
for a six-month rental of our excess
warehouse space. The $2,400 was recorded
as Rental revenue.
What AJE is needed on 12/31/X5?
GENERAL JOURNAL
Date
Description
Page: 1
PR
31-Dec Rental revenue
Unearned rental revenue
Debit
Credit
1,600
1,600
Std. vs. Expedient -
Standard vs. Expedient
Other Comments
 Adjusting entries under the expedient
method appear unusual
– Debits to revenue accounts
– Credits to expense accounts
 Regardless of the recording method
used, the ultimate financial statements
will be the same!!
10
Std. vs. Expedient -
WOW!
11