Consider the following two situations:
• On December 1, 2009, Harsha’s Cleaning Service, a new business, bought $6,500 of cleaning supplies. At the end of December, the business had $3,400 of supplies on hand.
• Silverman & Sachs is a large investment banking firm. In December 2009, the firm earned fees of $4.1 million for investment banking services provided to three large clients. As of December 31, 2009, the firm had not been paid for these services.
Required:
(a) Record the December 1, 2009, entry for the purchase made by Harsha’s Cleaning Service.
(b) Given the facts provided in each situation, prepare an appropriate adjusting journal entry as of December 31, 2009 for each company.
(c) Suppose the adjusting journal entries from part (b) were not recorded. Which accounting principles or concepts would be violated by these oversights? Why are these violations important?
(d) As an investor in these companies, would you be concerned to find that the adjusting entries had been omitted? Why or why not?