Question

CV 3.1 Chapter 3 Canvas Homework: What happens when you don't record Adjusting Journal Entries? Idle Bay, Inc forgot to record the following adjusting entries for the year 1) They didn't recognize $10,000 in earned revenue that had been paid in was correctly recorded as Unearned Revenue when the cash was received. 2) They didn't adjust for $2,000 in office supplies used during the year. 3) They didn't accrue $7,000 in unpaid salary expense that had been incurred as of year-end. 4) They didn't record for $6,000 in services performed for a customer that will be paying in January 2019. For each omitted transaction, answer the following questions: a) What Adjusting Journal Entry (AJE) should have been recorded at 12/31/2018? b) How will omitting this AJE affect Idle Bay's (0) Revenues, (ii) Expenses, (iii) Net Income. (iv) Assets, (1) Liabilities, and (vi) Retained Earnings on the 2018 financial statements? (overstated, understated, or not affected) c) Will the Balance Sheet be unbalanced as a result of this omission?

Answer 1

a)
Transaction	General Journal	Debit	Credit
1	Unearned Revenue	$10,000
	Revenue		$10,000
2	Supplies Expense	$2,000
	Office Supplies		$2,000
3	Salary Expense	$7,000
	Salary Payable		$7,000
4	Accounts Payable	$6,000
	Service Revenue		$6,000
b)	Revenues	Expenses	Net Income	Assets	Liabilities	Retained Earnings
1	Understated	Not affected	Understated	Not affected	Overstated	Understated
2	Not affected	Understated	Overstated	Overstated	Not affected	Overstated
3	Not affected	Understated	Overstated	Not affected	Understated	Overstated
4	Understated	Not affected	Understated	Understated	Not affected	Understated
c)	The balance sheet will be balanced as a result of this omission because every adjusting entry have two
	i.e. debit and credit, which should affect either assets and liabilities with the same amount of adjustment