Oregon Construction Contractors (CCB) Practice Test

How many general types of adjusting entries are there in the accounting cycle?

1. Four

2. Five

3. Six

4. Seven

The correct answer is: Six

In the accounting cycle, adjusting entries are vital for ensuring that the financial statements reflect the true financial position and performance of a business. There are six general types of adjusting entries, each serving a specific purpose in the accrual basis of accounting. These types typically include: 1. **Accrued Revenues**: Revenues earned but not yet received in cash or recorded. 2. **Accrued Expenses**: Expenses incurred but not yet paid or recorded. 3. **Deferred Revenues (Unearned Revenues)**: Cash received before services are performed or goods are delivered. 4. **Deferred Expenses (Prepaid Expenses)**: Expenses paid in cash before they are used or consumed. 5. **Depreciation Expense**: Allocation of the cost of a tangible asset over its useful life. 6. **Amortization Expense**: Allocation of the cost of an intangible asset over its useful life. These adjustments are crucial for matching revenues with expenses in the correct accounting periods, adhering to the matching principle in accounting. Understanding the different types of adjusting entries helps ensure accurate financial reporting and compliance with accounting standards.