During the year, a company recorded prepayments of expenses in asset accounts, and cash receipts of unearned revenues in liability accounts. At the end of its annual accounting period, the company must make three adjusting entries:

1. Accrue wages expense.
2. Accrue utilities expense.
3. Record salaries expense incurred for which the cash was paid in advance. For each of the adjusting entries (1), (2), and (3). Indicate the account to be debited and the account to be credited—from a through i below.

a. Utilities expense
b. Accounts payable
c. Salaries expense
d. Prepaid salaries
e. Accounts receivable
f. Service revenue
g. Intangible assets
h. Long-term investments
i. Plant Assets

When an expense is accrued it becomes a liability because it is owed. The salaries will be credited to the Accounts payable Account to reflect that it is a current liability.

2. Accrue Utilities Expense

Debit Utilities Expense

Credit Accounts Payable

Following the same example as the first question, this is an expense that was it paid and is now owed. It should be credited to the Accounts Payable account therefore as a liability.

3. Record salaries expense incurred for which the cash was paid in advance.

Debit Salaries Expense

Credit Prepaid Salaries

The salaries had already been paid for which made them prepaid. Prepaid accounts are assets and are debited to increase. It will be credited in this scenario because the prepaid Expense is now being used to pay off what it was meant to pay off which is the salary.