Question

Unadjusted Financial Statements income Statement For the Year Ended December 31, 2017 Service revenue $70,600.00 Wages expense 44,300.00 Net income $26,300.00 Cole Designs Inc. Balance Sheet December 31, 2017 Assets Cash $5,000.00 Accounts receivable 32,600.00 Supplies 3,650.00 5 Prepaid insurance 4,000.00 6 Office equipment 11,000.00 Total assets $56,250.00 Liabilities Unearned revenue $9,500.00 Stockholders' Equity Common stock $12,000.00 12 Retained earnings 34,750.00 46,750.00 13 Total liabilities and stockholders'equity $56,250.00

Answer 1

1) Under which basis of accounting would adjusting entries never be recorded?
Cash basis of accounting	Correct	Cash basis  accounting method in which an expense is recorded when cash is paid and revenue is recorded when cash is received.Companies using the cash basis do not have to prepare any adjusting entries
Accrual basis of accounting
2) Which accounts would most likely not be used under the cash basis of accounting? Check all that apply.
Unearned Fees	Correct	Unearned Fees, Accounts Payable and Accounts Recivables are used under accrual basis of accounting ,recognizes revenues when earned (a product is sold or a service has been performed), regardless of when cash is received. Expenses are recognized as incurred, whether or not cash has been paid out.
Supplies Expense
Accounts Payable	Correct
Cash
Accounts Receivable	Correct
Service Revenue
3)Matching Concept/Revenue Recognition
Under the accrual basis of accounting, many of the account balances in the ledger at the end of the accounting period are reported in the financial statements without change. Some accounts require updating, though. When preparing financial statements, the economic life of the business is divided into time periods. The matching concept states that
A purchase made by a business is matched with the actual cost of the item.
The expenses incurred during a period are matched with the revenue that those expenses generated.	Correct	Two accounts balance remains same are Land and Cash
The transactions of a business are matched with the transactions of its owner, creditors and other businesses.
The accounting records and reports are matched with objective evidence.
4) Under accrual basis of accounting, the revenue recognition concept states that
Revenues are recognized when services have been performed or products have been delivered to customers.	Correct	The accrual basis of accounting recognizes revenues when earned (a product is sold or a service has been performed), regardless of when cash is received
Revenues are recognized when a contract is signed with the customer.
Revenues are recognized when the cash is received.
Revenues may not be recognized until the company is deemed to be profitable.
5) Review the following selected transaction data of a business for March. Keeping the matching concept in mind, indicate which of the following would be used to calculate net income for the month of March. Check all that apply.
Cash received from cash customers for services performed in March.	correct
Expenses incurred in March but not paid until April.	Correct
Services provided to customers on account during March.	Correct
Cash paid in March for expenses incurred in March.	Correct
Cash paid in March for expenses incurred in February.	correct
Cash received in March from customers for services performed in February.