Adjusting entries | ||||||
S.no. | Accounts title and explanations | Debit $ | Credit $ | |||
a. | Accounts receivable | 2,000 | ||||
Service revenue | 2,000 | |||||
(for revenue recognized on account) | ||||||
b. | Insurance expenses (3200*3/6) | 1,600 | ||||
Prepaid insurance | 1600 | |||||
(for insurance premium expired) | ||||||
c. | Salaries and wages expense | 900 | ||||
Salaries and wages payable | 900 | |||||
(for salaries due and unpaid) | ||||||
d. | Deferred revenue | 225 | ||||
Service revenue (450*1/2) | 225 | |||||
(for revenue earned) | ||||||
e. | Depreciation expense | 1,500 | ||||
Accumulated depreciation-Equipment | 1500 | |||||
(for depreciation charged) | ||||||
f. | Deferred revenue | 700 | ||||
Service revenue (4200*2/12) | 700 | |||||
(for service revenue recognized) | ||||||
g. | Interest expense | 600 | ||||
Interest payable | 600 | |||||
(for interest due ) | ||||||
h. | Income tax expense | 6,000 | ||||
Income tax payable (20,000*30%) | 6,000 | |||||
(for income tax expense due) | ||||||
Statement Showing effect on Net Profits: | ||||||
Efffect on Net Profits | ||||||
a. Revenue to be recognized for service rendered | -2000 | |||||
b. Insurance premium expired | 1600 | |||||
c. Salaries and wages due and unpaid | 900 | |||||
d. Service revenue to be recognized | -225 | |||||
e. Depreciation to be charged | 1500 | |||||
f. Service revenue to be recognized | -700 | |||||
g. Interest to be made due | 600 | |||||
h. Income tax expense to be made due | 6000 | |||||
Net Income overstated for not passing adjusting entries | 7675 | |||||
Answer is Overstatement of Net Income by $ 7,675 |
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