Question

In: Accounting

West Laboratory provides service The trial balance at 30 September 2019, before adjustments is as follows:...

West Laboratory provides service The trial balance at 30 September 2019, before adjustments is as follows:

Debit

Credit

Cash

$174,450

Accounts Receivable

17,000

Prepaid Rent

28,000

Prepaid insurance

1,600

Supplies inventory

2,400

Equipment

183,600

Accumulated Depreciation: Equipment

$68,850

Accounts Payable

18,100

Unearned revenue

14,000

Share Capital

200,000

Retained Earnings

44,700

Revenue

371,000

Salaries Expense

200,000

Rent expense

56,000

Insurance expense

3,200

Utilities Expense

9,600

Depreciation Expense

      40,800

             

$716,650

$716,650

The following information relates to month end adjustments:

  1. The useful life of the equipment was estimated to be 4 years with no residual value. West Laboratory uses straight-line method to calculate depreciation.
  1. A few customers pay in advance for the laboratory services provided by West Laboratory. Fees of $6,000 were earned during the month by providing service to customers who had paid in advance.
  1. Salaries earned by employees during the month but not yet recorded amounted to $23,000.
  1. On 1 July 2019, West Laboratory prepaid $42,000 for 6 months’ rent for the period from July to December 2019.
  1. On 1 January 2019, West Laboratory prepaid an insurance of $4,800 for the year from 1st January to 31st December 2019.
  1. Medical service provided during the month but not yet billed or recorded amounted to

$4,600.

Required:

  1. Prepare the adjusting entries for the month of September 2019.
  1. Prepare an income statement after the above adjustments.

(c) The president of West Laboratory was informed that the financial statements would be available "as soon as the adjusting entries are made." Being a non-accountant, the president feels adjustments should not be necessary if the accounting department is operating in a competent manner. Does the need for adjusting entries at the end of the period imply that transactions are not being recorded properly? Why adjusting entries are needed? Explain.

Solutions

Expert Solution

C Adjusting entries are based on the accrual concept. As per this principle all expenses and incomes relating to the accounting period is to considered while preparing income statement. Some of the expenses may not be paid,but payable or income not received but receivable, etc. shall be considered.If adjusting entries are not made the income will not show the correct result. It will show only actual expense and incomes.

.It does not mean that transactions are not properly recorded, but accruals are not be reflected in accounts. Adjustments are done after accounts are closed.So adjusting entries must be made to get correct result of the business.

ekkarill92 answered 2 years ago
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