Question

CRAE Practice Brief Exercise 02 The bookkeeper for Larkspur, Inc. asks you to prepare the following accrued adjusting entries at December 31. 1. Interest on notes payable of $400 is accrued. 2. Services performed but not recorded total $2,000. 3. Salaries earned by employees of $570 have not been recorded. Use the following account titles: Service Revenue, Accounts Receivable, Interest Expense, Interest Payable, Salaries and Wages Expense, and Salaries and Wages Payable. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) No. Date Account Titles and Explanation Debit Credit 1 Dec. 31 2. Dec. 31 < 3. Dec. 31

Answer 1

AS PER ACCRUAL FUNDAMENTAL ACCOUNTING ASSUMPTION, all transactions are recorded in the books of accounts once they are accrued irrespective of cash inflow or outflow

1. INTEREST ACCRUED BUT NOT PAID

In this transaction interest of $400 has accrued but not paid therefore interest payable account with nature of liability will be considered and credited for the corresponding debit of interest expense.

On December 31^st

Interest expense account debit $400 (debit the expense)

Interest payable account credit $400

In case if paid in future: ( on payment of interest)

Interest payable account debit $400

Cash/ bank account credit $400

2. services performed but not recorded

In this transaction services of $2000 are rendered but the payment for the services are yet to be received. Services are in the nature of revenue/income to the Larkspur, Inc. The party who is receiving the service is liable to pay for it , with an impact of accounts receivable in the nature of asset to the Larkspur, Inc.

On December 31^st

Accounts receivable account debit $2000

Services revenue account credit $2000(credit the income)

In case if received in later period: (on receipt from the party)

Cash/bank account debit $2000

Accounts receivable account credit $2000

3. Salaries earned by employees but not recorded

In this transaction salaries of $570 are to be paid to the employees. Salaries and wages payable account in the nature of liability to Larkspur, Inc has to be credited.

On December 31^st

Salaries and wages expense account debit $570 (debit the expense)

Salaries and wages payable account credit $570

In case of payment in future: (on payment of salary and wages)

Salaries and wages payable account debit $570

Cash/bank account credit $570