Which of the following is an accrual adjusting entry example?

• A. Accrued wages
• B. Prepaid insurance
• C. Unearned revenue
• D. Prepaid rent

Answer: (B)

Accrual adjusting entries recognize expenses incurred or revenues earned in the period that haven’t yet been captured by cash movements. For example, wages that employees have earned by period end but haven’t been paid are recorded by debiting Wages Expense and crediting Wages Payable, so the expense is recognized in the correct period and a liability is shown for what is owed.

Prepaid insurance shows money paid before the benefit is received. The adjustment moves part of the Prepaid Insurance asset into Insurance Expense as time passes, which is a deferral adjustment, not an accrual.

Unearned revenue involves cash received before the service is performed. The adjustment recognizes the revenue that has now been earned and reduces the liability, another deferral.

Prepaid rent works the same way: cash is paid in advance, and the adjustment transfers part of that asset to rent expense as the period passes, a deferral rather than an accrual.

So, the kind of adjustment that counts as accrual is recording items like accrued wages (and similarly accrued revenues), where income or expense is recognized before cash changes hands.