Accounting
Answers
Adjusting entries are used to ensure the accuracy of the financial records. In this case, the hotel owner will need to make an adjusting entry to account for the prepayments from customers. The amount of the adjustment will depend on how many rooms are booked in advance. For example, if the hotel has booked 10 rooms, each at $220, the adjusting entry will be for a total of $2,200. The owner would debit the prepaid expense account to that amount, and credit cash for the same amount. The accounts affected will be the prepaid expense account, and the cash account. The prepaid expense account would be increased by the amount of the payment, and the cash account would be decreased by the same amount. This adjusting entry will ensure that the amounts received by customers are properly accounted for in the hotel's financial records.