My students, the question is for in case of differals, why do asset and liability will...

My students, the question is for in case of differals, why do asset and liability will be overstated if we did not make the adjustment entries?, and why do related expense and revenue will be understated if we did not make adjustment entry?. Looking for your analysis. Regards

Expert Solution

Generally adjustment entries are made because of matching principle which says that the income and expenses incurred for the current year should be recognised in the year for which it is incurred. If adjustment entry will not be made then the assets, net income and equity will be overstated.

Explanation: If expenses are outstanding at the end of year, then it should be recognised as liability in balance sheet and should be considered in income statement of the current year. So if this adjustment would not had been made then it would understate the liability and overstate the equity as the income would have overstated. Many other examples can be taken such as - depreciation which impacts the asset and equity.

So, if adjustment entries are not made then it overstate assets, equity, and net income and understates liability and expenses

ekkarill92 answered 2 years ago

Consider the following situations. In each case, is there an asset or liability within the definitions...

Consider the following situations. In each case, is there an asset or liability within the definitions given by the Conceptual Framework? Explain your answer. Elaborate your view with reference to the HKICPA Conceptual Framework of Financial Reporting (2018). a PPA Limited has purchased a copyright for $350,000. The copyright gives the company exclusive use of radio-frequency identification (RFID) technology for the production of a video game which will bring additional revenue around $300,000 each year for the next five years....

There is not a case study involved with this question. This is my second attempt to...

There is not a case study involved with this question. This is my second attempt to have this question answered. This question is in reference to the healthcare industry. Briefly describe what happens to each of the following as volume increases. Assume all values stay within their relevant range. Total fixed cost? Total variable cost? Fixed cost per unit? Variable cost per unit? Explain the relationship between step-fixed costs and the relevant range. References would be a bonus! This question...

Question 20 2.5 pts Merchandise Inventory is what type of account? Liability Expense Asset Contra-Asset Flag...

Question 20 2.5 pts Merchandise Inventory is what type of account? Liability Expense Asset Contra-Asset Flag this Question Question 21 2.5 pts Returned merchandise for credit on account. The perpetual inventory system is in use. This will be recorded with: a debit to an asset and a credit to a liability. a debit to an asset and a credit to an expense. a debit to a liability and a credit to an expense. a debit to a liability and a...

QUESTION 1. A bookkeeper has debited an asset account for $6900 and credited a liability account...

QUESTION 1. A bookkeeper has debited an asset account for $6900 and credited a liability account for $3700. Which of the following would be an incorrect way to complete the recording of this transaction: 2. Credit a revenue account for $3200. Credit another asset account for $3200. Debit another asset account for $3200. Credit the common stock account for $3200. Credit another liability account for $3200. QUESTION 1. Savvy Sightseeing had beginning equity of $78,000; revenues of $108,000, expenses of...

Question 1: For each of the transactions identified, state how the asset, liability and/or equity accounts...

Question 1: For each of the transactions identified, state how the asset, liability and/or equity accounts increase (↑), decrease (↓) or remain unchanged (-). Name the account. (a. is an example) ASSETS (A) = LIABILITIES (L) + EQUITY (E) a. Obtained a loan to purchase equipment for $65 000. ↑ Equipment $65 000 ↑ Loan $65 000 b. Customer pays $2000 of $5000 owing for services provided. c. A trade receivable, who owes $6000, made a...

Question 6 A bank has an average asset duration of 4 years and an average liability...

Question 6 A bank has an average asset duration of 4 years and an average liability duration of 1.5 years. This bank has total assets of $500 million and total liabilities of $450 million. Currently, market interest rates are 10 percent. If interest rates rise by 1 percent (to 11 percent), what is this bank's change in net worth? A. Net worth will decrease by $12.05 million B. Net worth will decrease by $15.45 million C. Either the net worth...

Explain the purpose of the Conceptual Framework. List one asset and one liability and describe why...

Explain the purpose of the Conceptual Framework. List one asset and one liability and describe why they meet the definition of an asset and a liability. For the four scenarios described below, indicate the business structure each one is likely to take — sole trader, partnership or company (public or proprietary) and why. (i) James and Liam have been running separate physiotherapy businesses but are finding the costs and hours are very high for one person and are only just...

Asset Type Asset Amount Liability Liability Amount Reserves Checkable Deposits Loans Bank Capital Assume the government...

Asset Type Asset Amount Liability Liability Amount Reserves Checkable Deposits Loans Bank Capital Assume the government of Smithville uses measures of monetary aggregates similar to those used by the United States. The central bank of Smithville imposes a required reserve ratio of 20 percent. For additional information, refer to the figures below: Bank Deposits held at the central bank = $400 million Currency and coin held by the public = $500 million Currency and coin in bank vaults = $200...

Is a high school building an asset or is it a liability? If it is neither,...

Is a high school building an asset or is it a liability? If it is neither, how should the cost be recorded? How is a high school reported in fund financial statements? How is the same high school reported in government-wide financial statements? Is the current method we use for government accounting the right approach to the case? What is a different approach other than the current method we can use for government accounting?

Describe the basic principles of the asset-liability method

Question