Question

+ Assignment 2 - Appendix C - Part 2 Question 8 of 8 -/5 View Policies Current Attempt in Progress Samuels Corp. began operations on January 1, 2020. Its fiscal year end is December 31. Samuels has decided that prepaid costs are debited to an asset account when paid, and all revenues are credited to revenue when the cash is received. During 2020, the following transactions occurred. 1. 2. 3. On January 1, 2020, Samuels bought supplies for $4,100 cash. A physical count at December 31, 2020, revealed $1.900 of supplies still on hand. Samuels bought a $6,000, one-year insurance policy for cash on August 1, 2020. The policy came into effect on this date. On November 15, 2020, Samuels received a $1.200 advance cash payment from a client for services to be provided in the future. As at December 31, 2020, one third of these services had not been performed. On December 1, 2020. Samuels rented out excess office space for a six-month period starting on this date, and received a $1,100 cheque for the first and last month's rent. 4. (b) In a business where accounting is performed at several divisions or office locations, is it possible that prepayments would be treated as assets in some offices and as expenses in others when initially recorded? Why or why not? Does the business have to have a consistent approach in all of its offices? Why or why not? В І y T T I HAI à TTT O Word(s) e Textbook and Media

Answer 1

(b): No, it is not possible that some offices will record prepayments as assets while some offices will record them as expenses. This is because of the fact that accounting rules and regulations that a business or a company follows is uniform and consistent for the entire organization and hence cannot vary from one division to another division. Take the example of GE. This company has got several different divisions like aviation, health care, capital etc. All these divisions follow the standard accounting process that is applicable throughout the organization.

A business has to have a consistent approach in all of its offices. If this is not done then consolidation of accounts will become problematic and will lead to lots of confusions and going back and forth on accounting entries for cross reference and validation purposes.