Accrued Interest Income and Prepaid Expenses

NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.

NB: All your data is kept safe from the public.

Table of Contents

Introduction
Accrual Interest Income
Prepaid Expenses
Conclusion
References

Introduction

An adjusting entry is a note in the company’s register of any unrecognized income or expense during the reporting period. If a transaction is posted in one period and ends in another, an adjusting entry is required for proper accounting. Adjusting entries are reflected in the company’s financial statements for the reporting period and may affect the perception of its financial well-being, helping recognize real expenses and income.

Accrual Interest Income

Accrual interest income refers to the amount of income accrued, but not yet received. Accrual interest is recorded at the end of the reporting period and reversed on the first day of the next period (Novak et al., 2019). An organization invested $200,000 in bonds at 5% funds on January 1 and expects to receive interest that is paid on July 31 and January 31. The company can record accrued earnings of $1,667 until July 31st. The corrective entry of financial statements can affect the public perception of the company, which is important for reputation. In the case of Roche, the company increased the pace of investment in 1999, demonstrating financial well-being.

Prepaid Expenses

Prepaid expenses are expenses that have been paid in advance by the company but have not yet been incurred. In companies like Roche, prepaid expenses may include ordered laboratory equipment, chemicals, and packaging materials. A pharmaceutical company leases a laboratory for a year to test a new drug. The lab rent costs $100,000 and the company must record the entire payment; then, every month, adjust the amount for the expense of $8,333. At the end of the year, the prepaid account will become zero (Daniliuc et al., 2020). The adjusting entries about prepaid expenses affect the company’s financial statements; it may appear that the company is incurring too much loss (Kieso et al., 2019). In fact, profits will be made every month, and advance payments will be evenly distributed until they are completely written off.

Conclusion

Adjusting journal entries are used to record transactions that have occurred but have not yet been properly accounted for under the accrual basis. Adjusting entries are used for accrual accounting purposes when one reporting period transitions into another (Birckhead, 2021). Even pending financial movements are reflected in both adjusting entries and financial statements for the reporting period. Adjusting entries allows us to understand how much real income and expenses the company will have in the next period.

References

Birckhead, E. (2021). Year-End Closing Guide for Accounting: All about Year-End Processing in Accounts Payable. Independently Published.

Daniliuc, S., Ang, H. N., Leo, K., Byrnes, K., Boys, N., Luke, B., Loftus, J. (2020). Financial Reporting, 3rd Edition. United Kingdom: Wiley.

Kieso, D. E., Kimmel, P. D., Weygandt, J. J. (2019). Financial Accounting. United Kingdom: Wiley.

Novak, L., Weygandt, J. J., Trenholm, B., Warren, V., Kimmel, P. D., Kieso, D. E. (2019). Accounting Principles, Volume 1. Canada: Wiley.

Click Here To Order Now!

Accrued Interest Income and Prepaid Expenses

Do you need this or any other assignment done for you from scratch?

We have qualified writers to help you.

We assure you a quality paper that is 100% free from plagiarism and AI.

You can choose either format of your choice ( Apa, Mla, Havard, Chicago, or any other)