relate to adjusting the accounts. Matching Principles is where the expenses could be coordinated with revenues. Revenue Recognition Principle states that an accountant should acknowledged revenue because it is the principle that deals with what has been earned in the accounting period.
3. Rick Marsh, a lawyer, accepts a legal engagement in March, performs the work in April, and is paid in May. If Marsh’s law firm prepares monthly financial statements, when should it recognize revenue from this engagement? Why? Rick should recognize revenue in April because this is the month that the revenue was earned. Reason being is that the questions states what month the revenues earned which is April.
4. Why do accrual-basis financial statements provide more useful information than cash-basis statements? Accrual-basis financial statements is more useful than a cash- basis statement because when using the accrual- basis you can reveal the future information needed for revenues that have been earned and can be earned.
8. Distinguish between the two categories of adjusting entries, and identify the types of adjustments applicable to each category. The two categories for adjusting entries are accrual and deferrals. Accruals deals with revenues and expenses while Deferrals deals with prepaid expenses and revenues.
The ledger of Piper Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared. Debit Credit
Prepaid Insurance $ 3,600
Depreciation—Equipment $ 8,400
Notes Payable 20,000
Unearned Rent 9,900
Rent Revenue 60,000
Interest Expense –0–
Wages Expense 14,000
An analysis of the accounts shows the following.
1. The equipment depreciates $400 per month.
2. One-third of the unearned rent was earned during the quarter. 3. Interest of $500 is accrued on the notes payable.