Chapter 3, Problem 3.10EX

(a)

To determine

Accrued Revenue

Accrued revenue refers to the revenue those are earned but not yet received in a particular accounting period. They are receivable for the business. Business treat accrued revenue as an asset.

Adjusting Entries

Adjusting entries indicates those entries which are passed in the books of accounts at the end of one accounting period. These entries are passed in the books of accounts as per the revenue recognition principle and the expenses recognition principle to adjust the revenue, and the expenses of a business in the period of their occurrence.

Rule of Debit and Credit:

Debit - Increase in all assets, expenses & dividends, and decrease in all liabilities and stockholders’ equity.

Credit - Increase in all liabilities and stockholders’ equity, and decrease in all assets & expenses.

To record: The adjusting entry for the accrued fees.

(b)

To determine

Cash basis of accounting

Cash basis of accounting is an accounting method in which all receipts and payments of the business are recorded in that accounting period in which the cash is actually received or paid.

To explain: The necessity of the adjusting entry, if cash basis accounting is followed instead of accrual basis accounting.