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In part 1, we had an introduction to reversing entries and discussed examples for accrued income and
accrued expense. This part covers the two other types unearned income and prepaid expense.
Particulars
2014
Dec 1 Cash
Debit
Credit
5,000.00
Service Revenue
5,000.00
At the end of 2014, the company rendered $2,000 worth of services. We need to set-up the unearned
income of $3,000 and bring Service Revenue to its correct balance ($2,000). The adjusting entry would
be:
Dec 1 Service Revenue
3,000.00
Unearned Revenue
3,000.00
Jan
Particulars
1 Unearned Revenue
Debit
Credit
3,000.00
Service Revenue
3,000.00
Particulars
2014
Debit
Credit
7,500.00
Cash
7,500.00
At the end of 2014, 1 month worth of rent has already expired. Prepaid Rent should be set-up for the
remaining 2 months. The adjusting entry would be:
Dec 31 Prepaid Rent
5,000.00
Rent Expense
5,000.00
Jan
Particulars
1 Rent Expense
Debit
Credit
5,000.00
Prepaid Rent
5,000.00