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djusted Financial Statements Cole Designs Inc. Income Statement For the Year Ended December 31, 2017 1 Service revenue $68,200.00 44,300.00 2 Wages expense 3 Net income $23,900.00 Cole Designs Inc. Balance Sheet December 31, 2017 1 Assets 2 Cash $5,000.00 Accounts racola 31.400.00 ccounting Problem eBook 5 Calculator adjusted Financial Statements Cole Designs Inc. Balance Sheet December 31, 2017 1 Assets 2 Cash $5,000.00 3 Accounts receivable 31,400.00 4 Supplies 3,575.00 5 Prepaid insurance 4,200.00 6 Office equipment 11,000.00 7 Total assets $55,175.00 Liabilities 9 Unearned revenue $8,600.00 10 Stockholders' Equity 11 Common stock $12,000.00 12 Retained earnings 34,575.00 46,575.00 13 Total liabilities and stockholders' equity $55,175.00 y Problem: Accrual Accounting adjusted Financial Statements Adjusted Financial Statements Chart of Accounts AC justed Financial Statements Adjusted Financial Statements These financial statements were prepared from the adjusted trial balance. Cole Designs Inc. Income Statement For the Year Ended December 31, 2017 1 Service revenue $74,050.00 2 Expenses 3 Wages expense $46,150.00 4 Supplies expense 3,465.00 5 Insurance expense 2,700.00 6 Depreciation expense 1,700.00 7 Total expenses 54,015.00 8 Net income $20,035.00 Th Chart of Accounts ASSETS 11 Cash REVENUE 41 Service Revenue 42 Rent Revenue 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance EXPENSES 17 Land 18 Office Equipment 19 Accumulated Depreciation Office Equipment 51 Wages Expense 52 Supplies Expense 53 Rent Expense 54 Utilities Expense 55 Insurance Expense 56 Depreciation Expense 59 Miscellaneous Expense LIABILITIES 21 Accounts Payable 22 Wages Payable 23 Unearned Rent 24 Unearned Revenue Accounting Bases Under which basis of accounting would adjusting entries never be recorded? Cash basis of accounting O Accrual basis of accounting Which accounts would most likely not be used under the cash basis of accounting? Check all that apply. Accounts Payable Supplies Expense Revenue Cash Unearned Revenue Accounts Receivable Revenue and Expense Recognition Principles Under the accrual basis of accounting, many of the account balances in the ledger at the end of the accounting period are reported in the financial statements without change. Some accounts require updating, though. When preparing financial statements, the economic life of the business is divided into time periods. The expense recognition principle states that O Personal expenses of a stockholder are recorded as expenses of the business Expenses are recorded in the same period as the revenue that it helped to generate. O Expenses are recorded based on objective evidence, An expense, such as a purchase made by business, is recorded at the actual cost of the item. Under the accrual basis of accounting, the revenue recognition principle states that o Revenues are recognized when services have been performed or products have been delivered to customers. Revenues may not be recognized until the company is deemed to be profitable. O Revenues are recognized when a contract is signed with the customer. Revenues are recognized when the cash is received. Revenue and Expense Recognition Principles Revenues may not be recognized until the company is deemed to be profitable. O Revenues are recognized when a contract is signed with the customer. Revenues are recognized when the cash is received. Review the following selected transaction data of a business for September. Keeping the expense recognition principle in mind, indicate which of the following would be used to compute net income for the month of September. Check all that apply. O Services provided to customers on account during September. Cash received from cash customers for services performed in September. Cash received in September from customers for services performed in August. Cash paid in September for expenses incurred in August. U Expenses incurred in September but not paid until October Cash paid in September for expenses incurred in September Lindlustad Financial Statements Adjusted Financial Statements Chart of Accounts Accounting Bases Overstated, Understated Assume that the Cole Designs Inc. Financial statements in the Unadjusted Financial Statements panel were prepared from the unadjusted trial balance and the financial statements in the Adjusted Financial Statements panel were prepared from the adjusted trial balance. For the following financial statement terms, indicate if the term was overstated, understated or neither in the financial statements prepared using the unadjusted trial balance. Overstated Understated Neither Net Income o o Stockholders' equity Revenues O O O O Total assets loooooo Total expenses Total liabilities Mastery Problem: Accrual Accounting Accounting Bases Adjusting Entries GENERAL JOURNAL ACCOUNTING EQUATION DATE POST. REF. DERIT CREDIT ASSETS LIABILITIES EQUITY ACCOUNT TITLE Adjusting Entries 1 2 3 7 9 10 12 13