Several years ago, your brother opened Chestnut Television Repair. He made a small initial investment and added money from his personal bank account as needed. He withdrew money for living expenses at irregular intervals. As the business grew, he hired an assistant. He is now considering adding more employees, purchasing additional service trucks, and purchasing the building he now rents. To secure funds for the expansion, your brother submitted a loan application to the bank and included the most recent financial statements (shown at the top of the following page) prepared from accounts maintained by a part-time bookkeeper.

After reviewing the financial statements, the loan officer at the bank asked your brother if he used the accrual basis of accounting for revenues and expenses. Your brother responded that he did and that is why he included an account for Amounts Due from Customers. The loan officer then asked whether or not the accounts were adjusted prior to the preparation of the statements.
Your brother answered that they had not been adjusted.
1. Why do you think the loan officer suspected that the accounts had not been adjusted prior to the preparation of the statements?
2. Indicate possible accounts that might need to be adjusted before an accurate set of financial statements could be prepared.

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Chestnut Television Repair Income Statement For the Year Ended August 31, 2006 $83,280 Service revenue Less: Rent paid Wages paid Supplies paid Utilities paid Insurance paid Miscellaneous payments $20,000 18,500 5,100 3,175 2,400 2,150 51325 $31,955 Net income Chestnut Television Repair Balance Sheet August 31, 2006 Assets Cash Amounts due from customers Truck Total assets 11,150 6,100 30,000 $47,250 Equities Stockholders equity $47,250