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:

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.

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.

Salaries earned by employees during the month but not yet recorded amounted to $23,000.

On 1 July 2019, West Laboratory prepaid $42,000 for 6 months’ rent for the period from July to December 2019.

On 1 January 2019, West Laboratory prepaid an insurance of $4,800 for the year from 1st January to 31st December 2019.

Medical service provided during the month but not yet billed or recorded amounted to

$4,600.

Required:

Prepare the adjusting entries for the month of September 2019.

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 1 year ago

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