Question
In: Accounting
ABC Ltd had the following transactions in the last two months of its year ended December...
ABC Ltd had the following transactions in the last two months of its year ended December 31, 2019
Nov 1: Paid Shs 9,500 cash for future newspaper advertising
Nov 2: Paid Shs 21,600 cash for 12 months of insurance through October 31, of the next year
Nov 30: Received Shs 33,000 cash for future services to be provided to a customer
Dec 1: Paid Shs 27,000 cash for a consultant's services to be received over the next three months
Dec 15: Received Shs 76,500 Cash for future services to be provided to a customer
Dec 31: Of the advertising paid for on Nov 1, Shs 9,000 worth is not yet used
Dec 31: Services worth Shs 12,000 are not yet provided to the customer who paid on Nov 30
Dec 31: One third of the consulting services paid for on Dec 1 have been received
Dec 31: The Company has performed Shs 30,000 worth of services that the customer paid for on Dec 15
Required
a) Adjusting entries from the information provided above at the end of the year
b) What is the Objective of a trial balance? Explain three possible errors that may not be detected by the extraction of a trial balance
Solutions
Expert Solution
| a) | Date | Accounts Title | Debit | Credit | ||||||
| Nov-01 | Prepaid Expense | 9500 | ||||||||
| CASH | 9500 | |||||||||
| (To record prepaid advertising paymet) | ||||||||||
| Nov-02 | Prepaid Insurance | 21600 | ||||||||
| Cash | 21600 | |||||||||
| (To record prepaid insurance paymet) | ||||||||||
| Nov-30 | Cash | 33000 | ||||||||
| Unearned revenue | 33000 | |||||||||
| (To record unearned revenue) | ||||||||||
| Dec-01 | Prepaid Expense | 27000 | ||||||||
| CASH | 27000 | |||||||||
| (To record prepaid consultancy payment) | ||||||||||
| Dec-15 | Cash | 76500 | ||||||||
| Unearned revenue | 76500 | |||||||||
| (To record unearned revenue) | ||||||||||
| Dec-31 | Advertising Expense | 500 | ||||||||
| Prepaid Expense | 500 | |||||||||
| (to record advertisement expense) | ||||||||||
| Dec-31 | Unearned Revenue | 21000 | ||||||||
| Service Revenue | 21000 | |||||||||
| (to record service revenue) | ||||||||||
| Dec-31 | ConsultiNG Expense | 9000 | ||||||||
| Prepaid Expense | 9000 | |||||||||
| (to record consultancy expense) | ||||||||||
| Dec-31 | Unearned Revenue | 30000 | ||||||||
| Service Revenue | 30000 | |||||||||
| (to record service revenue) | ||||||||||
| b) | The purpose of Trial balance is to check that all entries made upto date are balances and debits are matching with credits. A correct trial balance is thereafter posted in the formats if income statement and balance sheet. | |||||||||
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