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Chapter 3: Q.3-5TI-d (page 144)

Identify the impact on the income statement and balance sheet if adjusting entries for the following situations were not recorded. a. Office Supplies used, \(800. b. Accrued service revenue, \)4,000. c. Depreciation on building, \(3,500. d. Prepaid Insurance expired, \)650. e. Accrued salaries expense, \(2,750. f. Service revenue that was collected in advance has now been earned, \)130

Short Answer

Expert verified

In the balance sheet, prepaid insurance and equity will be overstated. And in the income statement, insurance expense will be understated and net income will be overstated.

Step by step solution

01

Impact on Income Statement

Not recording the adjusting entries of prepaid insurance expired will reduce the insurance expense and therefore result in increase in net income.

02

Impact on Balance Sheet

Prepaid insurance are the assets of the business. Not recording expired prepaid insurance will increase the prepaid insurance (total assets). As net income is increased, it will also increase equity (Retained earnnings).

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Most popular questions from this chapter

Question :Consider the following situations: a. Business receives \(3,200 on January 1 for 10-month service contract for the period January 1 through October 31. b. Total salaries for all employees is \)3,600 per month. Employees are paid on the 1st and 15th of the month. c. Work performed but not yet billed to customers for the month is \(1,600. d. The company pays interest on its \)16,000, 4% note payable of $53 on the first day of each month. Assume the company records adjusting entries monthly. Journalize the adjusting entries needed as of January 31.

On September 1, 2018, Salem Landscaping collected $24,000 in advance from customers for landscaping services. The service revenue will be earned monthly over the 12-month period ending August 31, 2019. Requirements 1. Journalize the entry on September 1 by using the alternative treatment of deferred revenues. 2. Record the December 31, 2018 adjusting entry

Question: Total Pool Services earned \(130,000 of service revenue during 2018. Of the \)130,000 earned, the business received \(105,000 in cash. The remaining amount, \)25,000, was still owed by customers as of December 31. In addition, Total Pool Services incurred \(85,000 of expenses during the year. As of December 31, \)10,000 of the expenses still needed to be paid. In addition, Total Pool Services prepaid $5,000 cash in December 2018 for expenses incurred during the next year. 1. Determine the amount of service revenue and expenses for 2018 using a cash basis accounting system. 2. Determine the amount of service revenue and expenses for 2018 using an accrual basis accounting system.

What is an accrued revenue? Provide an example

Question :In the recording of depreciation expense, which account is credited?
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