Activation Exercise 3-3: Accrued Revenues Terms and Definitions The acoual basis of accounting aligns revenues and expenses in their proper period.Each scenario below requires an adjusting entry. Select the type of transaction each scenario represents Accrual Scenario Tran saction Type Cash is received before the revenu is earned. Revenue is earned before cash is received, Accrued revenues is paid before expense is incurred. Prepaid expenses Expense is incurred before cash is paid. Prepaid expenses Partially correct Accrual accounting records revenues when they are eamed, not necessarily when cash is received, uikewise, expenses are recorded when they are incurred, not necessarily when they are Understanding the Business Transaction A business wil often provide a service prior to receiving payment This is done in situations where an established business relationship exists and collection is likely. Providng a servioe in advance of collection is cared ain) prepaid openee 03. This type of business transaction occurs because the customer often centralizes the cash payment function in order to veriry receipt of services and control cash payments from a singe administrative position. Thus, a business customer wil reaure additional administrative time after the reoript of service to make payment. For example, a business may provide an invoice to a customer for consulting services. The customer wil submit the invoice to a central cash payment function to verify that the consulting services actually received before issuing payment. ecessary for these types of transactions the accounting period ends between service completion date and the cash colliction date. earch the web and Windows