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Several years ago, your brother opened Ready Appliance Repairs. 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 below) prepared from accounts maintained by a part-time bookkeeper.

READY APPLIANCE REPAIR

Income statement

For the year Ended March 31 20Y6

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Service revenue.............................................................................................. $182,500

Less; Rent paid....................................................$41,200

Wages paid;...............................................................34,750

Supplies paid............................................................7,000

Utilities paid..............................................................6,500

Insurance paid........................................................3,600

Misc payments........................................................9,100

Net Income........................................................................................................ 102,150

$ 80,350

ASSESTS

Cash........................................................................................$25,900

Ammounts due from customeres............................. 18,750

Truck........................................................................................ 55,350

Total Assests..................................................................... $100,000

EQUITIES

Owners Equity.................................................................... $100,000

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.

a. Why do you think the loan officer suspected that the accounts had not been adjusted prior

to the preparation of the statements?

b. Indicate possible accounts that might need to be adjusted before an accurate set of financial

statements could be prepared.