Gomez Co. had the following transactions in the last two months of its year ended December 31. Entries can draw from the following partial chart of accounts: Cash; Prepaid Insurance; Prepaid Advertising; Prepaid Consulting Fees; Unearned Service Fees; Service Fees Earned; Insurance Expense; Advertising Expense; and Consulting Fees Expense. Nov. 1 Paid $1,800 cash for future advertising. 1 Paid $2,460 cash for 12 months of insurance through October 31 of the next year. 30 Received $3,600 cash for future services to be provided to a customer. Dec. 1 Paid $3,000 cash for a consultant’s services to be received over the next three months. 15 Received $7,950 cash for future services to be provided to a customer. 31 Of the advertising paid for on November 1, $1,200 worth is not yet used. 31 A portion of the insurance paid for on November 1 has expired. No adjustment was made in November to Prepaid Insurance. 31 Services worth $1,500 are not yet provided to the customer who paid on November 30. 31 One-third of the consulting services paid for on December 1 have been received. 31 The company has performed $3,300 of services that the customer paid for on December 15. Required 1. Prepare entries for these transactions under the method that initially records prepaid expenses as assets and records unearned revenues as liabilities. Also prepare adjusting entries at the end of the year. 2. Prepare entries for these transactions under the method that initially records prepaid expenses as expenses and records unearned revenues as revenues. Also prepare adjusting entries at the end of the year. Analysis Component 3. Explain why the alternative sets of entries in requirements 1 and 2 do not result in different financial statement amounts.
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
Gomez Co. had the following transactions in the last two months of its year ended December 31. Entries
can draw from the following partial chart of accounts: Cash; Prepaid Insurance; Prepaid Advertising;
Prepaid Consulting Fees; Unearned Service Fees; Service Fees Earned; Insurance Expense; Advertising
Expense; and Consulting Fees Expense.
Nov. 1 Paid $1,800 cash for future advertising.
1 Paid $2,460 cash for 12 months of insurance through October 31 of the next year.
30 Received $3,600 cash for future services to be provided to a customer.
Dec. 1 Paid $3,000 cash for a consultant’s services to be received over the next three months.
15 Received $7,950 cash for future services to be provided to a customer.
31 Of the advertising paid for on November 1, $1,200 worth is not yet used.
31 A portion of the insurance paid for on November 1 has expired. No adjustment was made in
November to Prepaid Insurance.
31 Services worth $1,500 are not yet provided to the customer who paid on November 30.
31 One-third of the consulting services paid for on December 1 have been received.
31 The company has performed $3,300 of services that the customer paid for on December 15.
Required
1. Prepare entries for these transactions under the method that initially records prepaid expenses as assets
and records unearned revenues as liabilities. Also prepare
2. Prepare entries for these transactions under the method that initially records prepaid expenses as expenses
and records unearned revenues as revenues. Also prepare adjusting entries at the end of the year.
Analysis Component
3. Explain why the alternative sets of entries in requirements 1 and 2 do not result in different financial
statement amounts.
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