Question

AN CT4-2 The financial statements of Columbia Sportswear Company are presented in Appendix B. Financial statements of VF Corporation are presented in Appendix C. Instructions (a) Identify two accounts on Columbia's balance sheet that provide evidence that Colum- bia uses accrual accounting. In each case, identify the income statement account that would be affected by the adjustment process. (b) Identify two accounts on VF's balance sheet that provide evidence that VF uses accrual accounting (different from the two you listed for Columbia). In each case, identify the income statement account that would be affected by the adjustment process.

Answer 1

(a) Columbia Balance sheet
Accounts which shows that accrual accounting is followed is
Prepaid Expenses, i.e. expenses paid in cash which relates to future periods.
On adjustment, Expense is debited and prepaid expense is credited for the amount of prepaid expense expired during the relevant period

Accrued Liabilities, i.e. the expenses which have been accrued but not paid in cash
Adjustment is expense is debited and payable or accrued liability is credited for amount accrued and relates to the period.

(b) VF Corporation
Accounts which shows that accrual accounting is followed is
Allowance for Doubtful accounts
Adjustment is allowance for doubtful accounts is adjusted to the ratio of uncollectible accounts by debiting bad debt expense

Accounts Payable i.e. amount which has not been paid in cash for expenses or purchases made in the relevant period
Adjustment affects any expense related for the period for which payment will be made in coming period.