AIPB Mastering Correction Adjusting
Entries Exam (Latest Update 2025 /
2026) Questions & Answers | Grade A |
100% Correct
Section 1: Understanding Adjusting Entries
1. What is the purpose of adjusting entries?
Answer: To ensure financial statements reflect accurate revenues and expenses
Rationale: Adjusting entries align accounts with the accrual basis of accounting.
2. What are the main types of adjusting entries?
Answer: Accruals, deferrals, depreciation, and bad debts
Rationale: These cover expenses/revenues earned or incurred but not yet recorded.
3. What is an accrued expense?
Answer: An expense incurred but not yet paid or recorded
Rationale: Examples include unpaid wages or utilities.
4. What is the journal entry for an accrued expense?
Answer: Debit Expense, Credit Payable
Rationale: This recognizes the expense and liability.
5. What is a deferred expense?
Answer: An expense paid in advance and not yet incurred
Rationale: Examples include prepaid insurance or rent.
,6. What is the journal entry for a deferred expense adjustment?
Answer: Debit Expense, Credit Prepaid Expense
Rationale: This allocates the used portion to expense.
7. What is accrued revenue?
Answer: Revenue earned but not yet received or recorded
Rationale: Examples include unbilled services.
8. What is the journal entry for accrued revenue?
Answer: Debit Accounts Receivable, Credit Revenue
Rationale: This recognizes the revenue and asset.
9. What is deferred revenue?
Answer: Revenue received in advance and not yet earned
Rationale: Examples include prepayments for subscriptions.
10. What is the journal entry for deferred revenue adjustment?
Answer: Debit Unearned Revenue, Credit Revenue
Rationale: This recognizes the earned portion.
11. What is the purpose of depreciation adjusting entries?
Answer: To allocate the cost of a fixed asset over its useful life
Rationale: This matches expense with revenue.
12. What is the journal entry for depreciation?
Answer: Debit Depreciation Expense, Credit Accumulated Depreciation
Rationale: This records the expense and reduces the asset’s book value.
13. What is a bad debt adjusting entry?
Answer: Estimates uncollectible accounts receivable
Rationale: It ensures realistic reporting of receivables.
, 14. What is the journal entry for bad debt expense?
Answer: Debit Bad Debt Expense, Credit Allowance for Doubtful Accounts
Rationale: This creates a contra-asset for uncollectible accounts.
15. Why are adjusting entries made at period-end?
Answer: To comply with the accrual basis of accounting
Rationale: They ensure revenues and expenses are recorded in the correct period.
Section 2: Correcting Accrued Expense Errors
16. An accrued expense of $1,000 for wages was omitted. What is the correction?
Answer: Debit Wages Expense $1,000, Credit Wages Payable $1,000
Rationale: This records the missed accrual.
17. An accrued expense was recorded as $800 instead of $1,200. What is the correction?
Answer: Debit Wages Expense $400, Credit Wages Payable $400
Rationale: This adjusts for the under-accrued amount.
18. An accrued expense of $500 was recorded twice. What is the correction?
Answer: Debit Wages Payable $500, Credit Wages Expense $500
Rationale: This reverses the duplicate entry.
19. What is the impact of omitting an accrued expense?
Answer: Understates expenses and liabilities, overstates net income
Rationale: This misstates the income statement and balance sheet.
20. An accrued utility expense of $600 was recorded as $60. What is the correction?
Answer: Debit Utilities Expense $540, Credit Utilities Payable $540
Rationale: This corrects the under-accrual.
Entries Exam (Latest Update 2025 /
2026) Questions & Answers | Grade A |
100% Correct
Section 1: Understanding Adjusting Entries
1. What is the purpose of adjusting entries?
Answer: To ensure financial statements reflect accurate revenues and expenses
Rationale: Adjusting entries align accounts with the accrual basis of accounting.
2. What are the main types of adjusting entries?
Answer: Accruals, deferrals, depreciation, and bad debts
Rationale: These cover expenses/revenues earned or incurred but not yet recorded.
3. What is an accrued expense?
Answer: An expense incurred but not yet paid or recorded
Rationale: Examples include unpaid wages or utilities.
4. What is the journal entry for an accrued expense?
Answer: Debit Expense, Credit Payable
Rationale: This recognizes the expense and liability.
5. What is a deferred expense?
Answer: An expense paid in advance and not yet incurred
Rationale: Examples include prepaid insurance or rent.
,6. What is the journal entry for a deferred expense adjustment?
Answer: Debit Expense, Credit Prepaid Expense
Rationale: This allocates the used portion to expense.
7. What is accrued revenue?
Answer: Revenue earned but not yet received or recorded
Rationale: Examples include unbilled services.
8. What is the journal entry for accrued revenue?
Answer: Debit Accounts Receivable, Credit Revenue
Rationale: This recognizes the revenue and asset.
9. What is deferred revenue?
Answer: Revenue received in advance and not yet earned
Rationale: Examples include prepayments for subscriptions.
10. What is the journal entry for deferred revenue adjustment?
Answer: Debit Unearned Revenue, Credit Revenue
Rationale: This recognizes the earned portion.
11. What is the purpose of depreciation adjusting entries?
Answer: To allocate the cost of a fixed asset over its useful life
Rationale: This matches expense with revenue.
12. What is the journal entry for depreciation?
Answer: Debit Depreciation Expense, Credit Accumulated Depreciation
Rationale: This records the expense and reduces the asset’s book value.
13. What is a bad debt adjusting entry?
Answer: Estimates uncollectible accounts receivable
Rationale: It ensures realistic reporting of receivables.
, 14. What is the journal entry for bad debt expense?
Answer: Debit Bad Debt Expense, Credit Allowance for Doubtful Accounts
Rationale: This creates a contra-asset for uncollectible accounts.
15. Why are adjusting entries made at period-end?
Answer: To comply with the accrual basis of accounting
Rationale: They ensure revenues and expenses are recorded in the correct period.
Section 2: Correcting Accrued Expense Errors
16. An accrued expense of $1,000 for wages was omitted. What is the correction?
Answer: Debit Wages Expense $1,000, Credit Wages Payable $1,000
Rationale: This records the missed accrual.
17. An accrued expense was recorded as $800 instead of $1,200. What is the correction?
Answer: Debit Wages Expense $400, Credit Wages Payable $400
Rationale: This adjusts for the under-accrued amount.
18. An accrued expense of $500 was recorded twice. What is the correction?
Answer: Debit Wages Payable $500, Credit Wages Expense $500
Rationale: This reverses the duplicate entry.
19. What is the impact of omitting an accrued expense?
Answer: Understates expenses and liabilities, overstates net income
Rationale: This misstates the income statement and balance sheet.
20. An accrued utility expense of $600 was recorded as $60. What is the correction?
Answer: Debit Utilities Expense $540, Credit Utilities Payable $540
Rationale: This corrects the under-accrual.
