AC 210 Lecture Notes - Lecture 11: Accounts Receivable

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silvercicada472

5 Jun 2018

School

University of Alabama

Department

Accountancy

Course

AC 210

Professor

Lisa Mc Kinney

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Accrued Revenues

An adjusting entry to accrue revenues is necessary when revenues have been earned

but not yet recorded. Examples of unrecorded revenues may involve interest revenue

and completed services or delivered goods that, for any number of reasons, have not

been billed to customers. Suppose a customer owes 6% interest on a three‐year,

$10,000 note receivable but has not yet made any payments. At the end of each

accounting period, the company recognizes the interest revenue that has accrued on

this long‐term receivable.

Unless otherwise specified, interest is calculated with the following formula: principal x

annual interest rate x time period in years.

Most textbooks use a 360‐day year for interest calculations, which is done here. In

practice, however, most lenders make more precise calculations by using a 365‐day

year.

Since the company accrues $50 in interest revenue during the month, an adjusting entry

is made to increase (debit) an asset account (interest receivable) by $50 and to

increase (credit) a revenue account (interest revenue) by $50.

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Related Questions

QUESTION 6

Which of the following statements is not true regarding prepaidexpenses?

		Prepaid expenses represent assets.
		Prepaid expenses are shown in a special section of the incomestatement.
		Prepaid expenses become expenses only as goods or services areused up.
		Prepaid expenses appear in the balance sheet.

4 points

QUESTION 7

The balance of an unearned revenue account:

		Appears in the balance sheet as a component of stockholders'equity.
		Appears in the income statement along with other revenueaccounts.
		Appears in a separate section of the income statement forrevenue not yet earned.
		Appears in the liability section of the balance sheet.

4 points

QUESTION 8

As of January 31, Hudson Corporation owes $600 to U-Rent-It forequipment used during January. If no adjustment is made for thisitem at January 31, how will Hudson's financial statements beaffected?

		Cash will be overstated at January 31.
		Net income for January will be overstated.
		Stockholders' equity will be understated.
		The financial statements will be accurate since the $600 doesnot have to be paid yet.

4 points

QUESTION 9

The accountant for the Linville Company forgot to make anadjusting entry to record revenue earned but not yet billed tocustomers. The effect of this error is:

		An overstatement of assets.
		An overstatement of stockholders' equity.
		Understatement of both assets and stockholders' equity
		Overstatement of both assets and stockholders' equity.

4 points

QUESTION 10

An adjusting entry involving recognition of unrecorded revenueis necessary at the end of March in which of the followingsituations?

		Financial Consultants received payment in February forconsulting services rendered in March.
		Financial Consultants began working for a client on March 15;bills will be sent monthly beginning April 15.
		Financial Consultants made payment in January for office rentfor the first three months of the year.
		On March 31, a major customer paid his bill for a consulting jobcompleted in February.

4 points

QUESTION 11

Which of the following entries causes an immediate decrease inassets and in stockholders' equity?

		The entry to record depreciation expense.
		The entry to record revenue earned but not yet received.
		The entry to record the earned portion of rent received inadvance.
		The entry to record accrued wages payable.

4 points

QUESTION 12

The CPA firm auditing Greer Company found that net income hadbeen overstated. Which of the following errors could be thecause?

		Failure to record depreciation expense for the period.
		No entry made to record purchase of land for cash on the lastday of the year.
		Failure to record payment of an account payable on the last dayof the year.
		Failure to make an adjusting entry to record revenue which hadbeen earned but not yet billed to customers.

violetshark689

TERRIFIC TEMPS UNADJUSTED TRIAL BALANCE DECEMBER 31, 2015
Cash	$	27,020
Accounts receivable		59,200
Unexpired insurance		900
Prepaid rent		3,000
Office supplies		600
Equipment		60,000
Accumulated depreciation: equipment			$	29,500
Accounts payable				4,180
Notes payable				12,000
Interest payable				320
Unearned fees				6,000
Income taxes payable				4,000
Unearned revenue				20,000
Retained earnings				49,000
Capital stock				25,000
Dividends		3,000
Feesearned				75,000
Travel expense		5,000
Insurance expense		2,980
Rentexpense		9,900
Office supplies expense		780
Utilities expense		4,800
Depreciation expense: equipment		5,500
Salaries expense		30,000
Interest expense		320
Income taxes expense		12,000

	$	225,000	$	225,000

Other Data
1.	Accrued butunrecorded fees earned as of December 31, 2015, amount to$1,500.
2.	Records showthat $2,500 of cash receipts originally recorded as unearned feeshad been earned as of December 31.
3.	The companypurchased a six-month insurance policy on September 1, 2015, for$1,800.
4.	On December 1,2015, the company paid its rent through February 28, 2016.
5.	Office supplieson hand at December 31 amount to $400.
6.	All equipment was purchased when the business first formed. Theestimated life of the equipment at that time was 10 years (or 120months).
7.	On August 1, 2015, the company borrowed $12,000 by signing asix-month, 8 percent note payable. The entire note, plus sixmonths' accrued interest, is due on February 1, 2016.
8.	Accrued butunrecorded salaries at December 31 amount to $2,700.
9.	Estimated incometaxes expense for the entire year totals $15,000. Taxesare due in the first quarter of 2016.

Instructions

a.	For each of thenumbered paragraphs, prepare the necessary adjusting entry.(If no entry is required for a transaction/event, select"No journal entry required" in the first accountfield.)

Journal Entry Worksheet

Record the accrued but uncollected fees earned.

Record fees earned as of December 31st.

Record the December insurance expense.

Record the December rent expense.

Record the offices supplies used in December.

Record the December depreciation expense.

Record the interest accrued in December.

Record the salaries accrued in December.

Record the income taxes accrued in December.

Dec. 31

*Enter debits before credits


1.	Fees earned
2.	Travel expense
3.	Insurance expense
4.	Rent expense
5.	Office supplies expense
6.	Utilities expense
7.	Depreciation expense: equipment
8.	Interest expense
9.	Salaries expense
10.	Income taxes expense

The unadjusted trial balance reportsdividends of $3,000. As of December 31, 2015, have these dividendsbeen paid?

	Yes
	No

salmonbee133

Terrific Temps fills temporary employment positions for localbusinesses. Some businesses pay in advance for services; others arebilled after services have been performed. Advanced payments arecredited to an account entitled Unearned Fees. Adjusting entriesare performed on a monthly basis. An unadjusted trial balance datedDecember 31, 2015, follows. (Bear in mind that adjusting entrieshave already been made for the first 11 months of 2015, but not forDecember.) TERRIFIC TEMPS UNADJUSTED TRIAL BALANCE DECEMBER 31,2015 Cash $ 27,020 Accounts receivable 59,200 Unexpired insurance900 Prepaid rent 3,000 Office supplies 600 Equipment 60,000Accumulated depreciation: equipment $ 29,500 Accounts payable 4,180Notes payable 12,000 Interest payable 320 Unearned fees 6,000Income taxes payable 4,000 Unearned revenue 20,000 Retainedearnings 49,000 Capital stock 25,000 Dividends 3,000 Fees earned75,000 Travel expense 5,000 Insurance expense 2,980 Rent expense9,900 Office supplies expense 780 Utilities expense 4,800Depreciation expense: equipment 5,500 Salaries expense 30,000Interest expense 320 Income taxes expense 12,000 $ 225,000 $225,000 Other Data 1. Accrued but unrecorded fees earned as ofDecember 31, 2015, amount to $1,500. 2. Records show that $2,500 ofcash receipts originally recorded as unearned fees had been earnedas of December 31. 3. The company purchased a six-month insurancepolicy on September 1, 2015, for $1,800. 4. On December 1, 2015,the company paid its rent through February 28, 2016. 5. Officesupplies on hand at December 31 amount to $400. 6. All equipmentwas purchased when the business first formed. The estimated life ofthe equipment at that time was 10 years (or 120 months). 7. OnAugust 1, 2015, the company borrowed $12,000 by signing asix-month, 8 percent note payable. The entire note, plus sixmonths' accrued interest, is due on February 1, 2016. 8. Accruedbut unrecorded salaries at December 31 amount to $2,700. 9.Estimated income taxes expense for the entire year totals $15,000.Taxes are due in the first quarter of 2016. Instructions a. Foreach of the numbered paragraphs, prepare the necessary adjustingentry. (If no entry is required for a transaction/event, select "Nojournal entry required" in the first account field.

part 2.b. Determine that amount at which eachof the following accounts will be reported in the companyâs 2015income statement

1.fees earned

2.travel expense

3.insurance expense

4.rent expense

5.office supplies expense

6.utilities expense

7.depreciation expense:equipment

8.interest expense

9.income taxes expense

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AC 210 Lecture Notes - Lecture 11: Accounts Receivable

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