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Completion of Accounting Cycle Part 1
Chapter 4 – Adjusting the accounts and preparing financial statements
Discussion Question 4.1
How is profit determined under (a) the cash basis of accounting and (b) the accrual basis of accounting?
Discussion Question 4.2
Explain why the purchase of supplies is usually recorded in an asset account rather than in an expense account. If supplies were expensed when purchased, which accounts should be debited and which credited at the end of the period in order to reflect the amount of supplies on hand?
Exercise 4.1 – Identifying adjusting journal entries
Required:
Match the end-of-financial-year adjustments (for each independent situation) to the appropriate journal entry.
Adjustments
1. Insurance expense which has not been used up (there is still future cover)
2. Portion of recognized revenue which is considered unearned
3. Revenue received in advance which is now earned
4. Portion of prepaid insurance which has now expired (been used up)
5. Revenue earned but not yet received
6. Expenses incurred but not yet paid
Journal Entries a Prepaid Insurance Dr, Insurance Expense Cr b Unearned Revenue Dr, Revenue Cr c Insurance Expense Dr, Prepaid Insurance Cr d Revenue Dr, Unearned Revenue Cr e Expenses Dr, Expenses Payable Cr f Revenue Receivable Dr, Revenue Cr
Problem 4.14 Opening T Accounts, Adjusting Entries and Preparing Financial Statements
Macca’s Party Hire hires out equipment and furniture for parties. The unadjusted trial balance of the business appears as shown below:
MACCA’S PARTY HIRE
Unadjusted Trial Balance
As at 30 June 2010
Account
Debit ($)
Credit ($)
Cash at bank
Accounts Receivable
GST outlays
Prepaid Insurance
Party equipment
Accumulated Depreciation-party equipment
Furniture
Accumulated Depreciation-furniture
Accounts Payable
GST collections
K.Maclean, Capital
K.Maclean, Drawings
Hire fees revenue
Salaries expense
Rent expense
Maintenance expense
Chapter 4 – Adjusting the accounts and preparing financial statements
Discussion Question 4.1
How is profit determined under (a) the cash basis of accounting and (b) the accrual basis of accounting?
Discussion Question 4.2
Explain why the purchase of supplies is usually recorded in an asset account rather than in an expense account. If supplies were expensed when purchased, which accounts should be debited and which credited at the end of the period in order to reflect the amount of supplies on hand?
Exercise 4.1 – Identifying adjusting journal entries
Required:
Match the end-of-financial-year adjustments (for each independent situation) to the appropriate journal entry.
Adjustments
1. Insurance expense which has not been used up (there is still future cover)
2. Portion of recognized revenue which is considered unearned
3. Revenue received in advance which is now earned
4. Portion of prepaid insurance which has now expired (been used up)
5. Revenue earned but not yet received
6. Expenses incurred but not yet paid
Journal Entries a Prepaid Insurance Dr, Insurance Expense Cr b Unearned Revenue Dr, Revenue Cr c Insurance Expense Dr, Prepaid Insurance Cr d Revenue Dr, Unearned Revenue Cr e Expenses Dr, Expenses Payable Cr f Revenue Receivable Dr, Revenue Cr
Problem 4.14 Opening T Accounts, Adjusting Entries and Preparing Financial Statements
Macca’s Party Hire hires out equipment and furniture for parties. The unadjusted trial balance of the business appears as shown below:
MACCA’S PARTY HIRE
Unadjusted Trial Balance
As at 30 June 2010
Account
Debit ($)
Credit ($)
Cash at bank
Accounts Receivable
GST outlays
Prepaid Insurance
Party equipment
Accumulated Depreciation-party equipment
Furniture
Accumulated Depreciation-furniture
Accounts Payable
GST collections
K.Maclean, Capital
K.Maclean, Drawings
Hire fees revenue
Salaries expense
Rent expense
Maintenance expense