Mastery Problem: The Adjusting Process Under which basis of accounting would adjusting entries never be journalized? Cash basis of accounting 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 Cash Unearned Fees Accounts Receivable Service Revenue CHART OF ACCOUNTS Cole Designs General Ledger ASSETS 11 Cash 12 Accounts Receivable 14 Supplies 15 Prepaid Insurance 18 Equipment 19 Accumulated Depreciation-Equipment LIABILITIES 22 Wages Payable 23 Unearned Fees EQUITY 31 Ann Cole, Capital 32 Ann Cole, Drawing REVENUE 41 Fees Earned EXPENSES 51 Wages Expense 52 Supplies Expense 55 Insurance Expense 56 Depreciation Expense These financial statements were prepared from the unadjusted trial balance. Cole Designs Income Statement For the Year Ended December 31, 2018 1 Fees earned $70,600.00 2 Wages expense 44,900.00 3 Net income $25,700.00 Cole Designs Balance Sheet December 31, 2018 1 Assets 2 Cash $4,000.00 3 Accounts receivable 32,600.00 4 Supplies 3,625.00 5 Prepaid Insurance 4,000.00 6 Equipment 11,000.00 7 Total assets $55,225.00 8 Liabilities 9 Unearned fees $7,700.00 10 Owners Equity 11 Ann Cole, Capital 47,525.00 12 Total liabilities and owners equity $55,225.00 These financial statements were prepared from the adjusted trial balance. Cole Designs Income Statement For the Year Ended December 31, 2018 1 Fees earned $77,000.00 2 Expenses: 3 Wages expense $47,200.00 4 Supplies expense 3,515.00 5 Insurance expense 2,900.00 6 Depreciation expense 2,000.00 7 Total expenses 55,615.00 8 Net income $21,385.00 Cole Designs Balance Sheet December 31, 2018 1 Assets 2 Cash $4,000.00 3 Accounts receivable 33,000.00 4 Supplies 110.00 5 Prepaid Insurance 1,100.00 6 Equipment $11,000.00 7 Less accumulated depreciation-equipment 2,000.00 9,000.00 8 Total assets $47,210.00 9 Liabilities 10 Wages payable $2,300.00 11 Unearned fees 1,700.00 12 Total liabilities $4,000.00 13 Owners Equity 14 Ann Cole, Capital 43,210.00 15 Total liabilities and owners equity $47,210.00 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 matching principle states that The expenses incurred during a period are matched with the revenue that those expenses generated. The transactions of a business are matched with the transactions of its owner, creditors and other businesses. A purchase made by a business is matched with the actual cost of the item. The accounting records and reports are matched with objective evidence. Under accrual basis of accounting, the revenue recognition principle states that Revenues are recognized when the cash is received. Revenues are recognized when a contract is signed with the customer. Revenues may not be recognized until the company is deemed to be profitable. Revenues are recognized when services have been performed or products have been delivered to customers. Review the following selected transaction data of a business for September. Keeping the matching principle in mind, indicate which of the following would be used to compute net income for the month of September. Check all that apply. Expenses incurred in September but not paid until October. Cash received in September from customers for services performed in August. Cash received from cash customers for services performed in September. Cash paid in September for expenses incurred in August. Services provided to customers on account during September. Cash paid in September for expenses incurred in September. Assume that the Cole Designs 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 items, indicate if the item was overstated, understated or neither in the financial statements prepared using the unadjusted trial balance. Overstated Understated Neither Net income Owners equity Revenues Total assets Total expenses Total liabilities Journalize the six December 31 adjusting entries for Cole Designs that adjusted the accounts to arrive at the financial statements in the Adjusted Financial Statements panel. Refer to the Chart of Accounts for exact wording of account titles. Journalize each adjustment as a separate entry. PAGE 25 JOURNALACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 Adjusting Entries.