During the financial close process, a number of journal entries are made to ensure that the income statement and balance sheet comply with GAAP, with particular emphasis on ensuring: 1) revenues / expenses are in the proper period, and 2) items on the balance sheet are properly valued. Often, these journal entries relate to ensuring the GL is maintained on an accrual basis, and not cash basis.
Accruals = adjustments where recognition in the GL precedes cash disbursement/receipt. Expenses / revenues should be recognized in the period the underlying activity occurs. For example, a consultant provides services in December but no invoice is received – an accrual journal entry is made to debit expense and credit A/P.
Deferrals = adjustments where cash received first and recognition is at a later period. An example would be that a company receives a customer deposit in December, but the services will not be performed until January. The receipt of cash would thus debit cash and credit deferred (or unearned) income.
Reversing Entries = occurs when an accrual is made to a period, but literally is reversed out in the subsequent period (usually thru GL system), as a GL entry will be recorded via a normal transaction (often AP or AR). In the accrual example above, the expense entry would be accrued in December, but reverse out in January. The vendor invoice will come thru the A/P system in January which will again debit expense and credit A/P. So ….. the net effect to expense in January will be $0.
Adjusting Entries = relate to period end adjustments in the GL, in particular to valuation accounts (assets) or on provisions (liabilities). Examples would include: 1) changes in A/R allowance for bad debts, 2) changes for warranty or legal provisions.
When you are looking at problems with prepaid assets / unearned revenues, the first step is to determine what balance SHOULD remain in these balance sheet accounts at the end of the period. Look at the INFO in the problem and calculate the proper balance. The difference between the proper balance and what is ACTUALLY in the account becomes the amount of your journal entry. For example, if you determine that $500 SHOULD BE in your prepaid taxes account compared to the ACTUAL $1,000 account balance, then you would make an adjusting journal entry debiting property tax expense for $500 and crediting prepaid taxes for $500.
Sorry if I confused you even more. Good luck!