Question

Overview: Our main objective in Packet 9 is to continue to understand how to report the results of operations when cash flows don't exactly match accomplishments and sacrifices. Recall that the reason we are preparing financial statements is primarily for their use in external decision making. In other words, we need to provide external users (who aren't involved with actually running the company) with an understanding of what the company has achieved during the period. That means that we need to record economic events as they occur, even if cash is exchanged before the actual event. Semester case As he completes the last quarter of his first full fiscal year (July 1 - June 30) W.T. has seen some changes in the way My Assistant operates: • The business has continued to take on additional jobs that require purchases of supplies. So much so that he's begun buying supplies from a commercial supplier so that My Assistant can pay wholesale prices. These purchases all take place on account. Payment is due 30 days after delivery. • Stillwater News Press offered My Assistant a discount if advertising is paid in advance and six months' worth of ads are purchased at once. This means cash will be paid before the full benefit of the ads is received. One new business client with standing appointments asked if it would be possible to receive a small discount for My Assistant's services if they paid for three months' worth of weekly service in advance. W.T. agreed. • Because W.T. is now consistently maintaining a balance of over $1,000 in the company checking account, My Assistant is eligible for a small interest deposit each month. Those deposits will be made on the first day of the month following the month in which they are earned. The first such deposit will occur on July 1. . As you read, think about how W.T. should report these situations within the accounting system. Remember: our objective is to match revenues with the expenses that helped to generate them.

Answer 1

Question 1 -

Expenses & Assets -

Expenses are recurring in nature and Assets are long term short term, tangible or intangible. Expenses are incurred to maintain the business. Assets are purchase by the company to earn revenue for the same.

Assets -

Assets are divided into three parts - Capital assets, Current Assets and Intangible Assets

Capital Assets like Land, Building, and Equipment

Current Assets like Debtors, Cash, and Inventory

Intangible Assets like Goodwill, Patents

Expenses -

Expenses are incurred to run the business. These includes Cost of Goods Sold, Administrative Expenses, Selling and general administrative Expenses

Cost of Goods Sold are the major portion of the cost for the company which will be deducted from the revenue.

Administrative Expenses includes Salaries, Depreciation Expenses

Selling and general administrative Expenses includes selling expense, Sales person salaries.

Question 2 -

Closing Process -

In the journal entries and adjusting entries we open lot of temporary accounts which needs to be closed before closing balance sheet for the financial year

Revenue and Expense are not transferred to balance sheet at the end of the financial year hence we need to close the revenue account and expense account to transfer the balance to retained earnings.

Dividend Accounts need also to be close at the end of the financial year.

To close and transfer all the temporary accounts we need to process the closing entries.

Question 3 -

Prepaid Items -

Prepaid Items are payment made by the company in advance for the expense incurred yet. These items are shown in the assets side in the current assets.

Example -

Insurance paid for 2 year in advance $24,000 on January 1, 2020

In the above mentioned transaction company has paid insurance expense for the period of 2 year in advance for the expense which has not incurred yet.

Question 4 -

Unearned Revenue -

Unearned revenue is the revenue not earned by the company but customer had already made payment. Customer paid the advance amount for the service to be received.

Example -

Customer paid advance amount of $20,000 for the service to be received in the next financial year.

According to service provide by the company to customer, company will debit the unearned revenue and book service revenue for the same.