Q5SE - Horngren'S Financial And Managerial Accounting

Question

Question :A select list of transactions for Anuradha’s Goals follows:

April 1 Paid six months of rent, \(4,800.

10 Received \)1,200 from customer for six-month service contract that

began April 1.

15 Purchased a computer for \(1,000.

18 Purchased \)300 of office supplies on account.

30 Work performed but not yet billed to customer, \(500.

30 Employees earned \)600 in salaries that will be paid May 2

For each transaction, identify what type of adjusting entry would be needed. Select from the following four types of adjusting entries: deferred expense, deferred revenue, accrued expense, and accrued revenue.

Step-by-Step Solution

Answer

Answer

Transaction Date	Adjusting Entries Type
April 1	Deferred expense
April 10	Deferred revenue
April 15	Deferred expense
April 18	Deferred expense
April 30	Accrued revenue
April 30	Accrued expense

Step1: Explanation of Deferred Expense

Deferred expenses refer to the prepaid expenses, in which payment is made in advance for the expenses of the future. Transaction on April 1 includes payment made for future rent expenses. Transaction on April 15 will include recording of depreciation expense on computer. Transaction on April 18 will include recording of supplies expense

Step 2: Explanation of Deferred Revenue

Deferred revenue refers to the advance amount received by the business for future sale transactions. Transaction on April 10 includes receiving advance for the future service contract. 

Step 3: Explanation of Accrued Revenue

Accrued revenue refers to the revenue earned but not collected in cash by the business. Transaction on April 30 includes work performed, but cash has not been received from the customer.

Step 4: Explanation of Accrued Expense

Accrued expenses are the expenses that are incurred by the business but remain unpaid. Transaction on April 30 includes incurred salaries expenses that are unpaid.