At Sugarland Ltd., prepaid costs are debited to expense when cash is paid and unearned revenues are credited to revenue when the cash is received. During January of the current year, the following transactions occurred.

On January 31, it is determined that $3,500 of the service revenue has been earned and that there is $2,800 of supplies on hand.
Instructions
(a) Journalize and post the January transactions. Use T accounts.
(b) Journalize and post the adjusting entries at January 31.
(c) Determine the ending balance in each of the accounts.
(d) How would account balances on January 31 be affected if Sugar land records prepayments by debiting an asset when prepaid costs are paid in cash, and crediting a liability when unearned revenues are collected in advance?

Transcribed Image Text:

Jan. 2 Received $11,100 for services to be performed in the future. 2 Paid $3,600 for casualty insurance protection for the year. 10 Paid $5,700 for supplies.