Question

Selected account balances before adjustment for Atlantic Coast Realty at July 31, the end of the current year, are as follows:

	Debits	Credits
Accounts Receivable	$ 77,000
Equipment	349,900
Accumulated Depreciation—Equipment		$113,200
Prepaid Rent	8,800
Supplies	3,480
Wages Payable		–
Unearned Fees		11,400
Fees Earned		655,600
Wages Expense	327,900
Rent Expense	–
Depreciation Expense	–
Supplies Expense	–

Data needed for year-end adjustments are as follows:

•	Unbilled fees at July 31, $11,400.
•	Supplies on hand at July 31, $1,090.
•	Rent expired, $5,950.
•	Depreciation of equipment during year, $8,900.
•	Unearned fees at July 31, $2,260.
•	Wages accrued but not paid at July 31, $4,920.

	Required:
1.	Journalize the six adjusting entries required at July 31, based on the data presented. Refer to the Chart of Accounts for exact wording of account titles.
2.	What would be the effect on the income statement if the adjustments for unbilled fees and accrued wages were omitted at the end of the year?
3.	What would be the effect on the balance sheet if the adjustments for unbilled fees and accrued wages were omitted at the end of the year?
4.	What would be the effect on the “Net increase or decrease in cash” on the statement of cash flows if the adjustments for unbilled fees and accrued wages were omitted at the end of the year?

CHART OF ACCOUNTS
Alantic Coast Realty
General Ledger
ASSETS 11 Cash 12 Accounts Receivable 13 Supplies 14 Prepaid Rent 15 Land 16 Equipment 17 Accumulated Depreciation-Equipment LIABILITIES 21 Accounts Payable 22 Unearned Fees 23 Wages Payable 24 Taxes Payable EQUITY 31 Owner’s Equity 32 Withdrawals	REVENUE 41 Fees Earned 42 Rent Revenue EXPENSES 51 Advertising Expense 52 Insurance Expense 53 Rent Expense 54 Wages Expense 55 Supplies Expense 56 Utilities Expense 57 Depreciation Expense 59 Miscellaneous Expense

1. Journalize the six adjusting entries required at July 31, based on the data presented. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1		Adjusting Entries
2
3
4
5
6
7
8
9
10
11
12
13

2. What would be the effect on the income statement if the adjustments for unbilled fees and accrued wages were omitted at the end of the year?

	Over/Understated	Amount
Fees earned
Wages expense
Net income

3. What would be the effect on the balance sheet if the adjustments for unbilled fees and accrued wages were omitted at the end of the year?

	Over/Understated	Amount
Accounts receivable
Total assets
Wages payable
Total liabilities
Owner’s equity
Total liabilities and owner’s equity

4. What would be the effect on the “Net increase or decrease in cash” on the statement of cash flows if the adjustments for unbilled fees and accrued wages were omitted at the end of the year? over/understated/no effect

Answer 1

1.

Date	Particulars	Amount ($) Dr.	Amount ($) Cr.
July,31	Accounts Receivable A/C ......................................Dr. To Unbilled Fees ( Being there was an unbilled fees)	11.400.00	11,400.00
July,31	Supplies Expenses A/C ........................................Dr. To Supplies A/C (Being there was Sipplies on Hand)	1,090.00	1,090.00
July,31	Rent Expenses A/C ...............................................Dr. To Prepaid rent A/C (Being Rent expired of $5,950.00)	5,950.00	5,950.00
July,31	Depreciation Expenses - Equipments A/C ............Dr.    To Accumulated Depreciation A/C (Being there was depreciation for equipments)	8,900.00	8,900.00
July,31	Cash A/C ..............................................................Dr. To Unearned Fees A/C (Being there was an unearned fees )	2,260.00	2,260.00
July,31	Wages Expenses A/C ........................................ .Dr. To Wages Payable A/C (Being wages accrued but not paid till date)	4,920.00	4,920.00

2. Effect on the income statement if the adjustments for unbilled fees and accrued wages were omitted at the end of the year :

Unbilled receivables are recognized revenue that you have accounted for, but not yet sent an invoice to the customer. Basically, it refers to the idea that you’ve already provided the service to a customer but not yet billed them. If we don,t record this type of accrued income in the income statement then it will show a decreased value of income.

If we don't record accrued wages in the income statement it means income is increased by that value. So, we need to deduct the expenses so that we can see a true and fare value of income by the statement.

3. Effect on the Balance Sheet if the adjustments for unbilled fees and accrued wages were omitted at the end of the year :

If we don't pass the any adjustment entry for unbilled fees, then the asset side of the balance sheet will show a decreased value of tha amount. Although this is an income we are going to receive in future. if we don't record this then we will not be able to show a fare value of the balance sheet

If we don't record accrued wages in the Balance sheet it means we are not maintaining the actual Liability which is needed to be followed.

4. Effect on the “Net increase or decrease in cash” on the statement of cash flows if the adjustments for unbilled fees and accrued wages were omitted at the end of the year

Increasing accrued expenses has a positive effect on cash flow, but it does not directly increase cash flow. Given the same amount of cash receipts during an accounting period, the less the cash payments as a result of the increased expense accruals, the more the amount of cash generated from operations. When a company's net income includes deductions of non-cash accrued expenses, cash flow is expected to exceed net income. Companies may also increase cash flow by using non-operating measures such as increasing financing or selling investments.