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Homework Week 3


Exercise 2

Resource: Ch. 4 of Financial Accounting

Complete Exercise BE4-1.

Complete Problems 4-2A & 4-3A. 

Answer the following:

·  Commercial accounting and generally accepted accounting principles, generally prescribe the accrual basis of accounting over the cash basis.

·  Describe both bases of accounting and explain the differences.

Submit as either a Microsoft® Excel® or Microsoft® Word document

Brief Exercises

BE4-1 Transactions that affect earnings do not necessarily affect cash. Identify the effect,

if any, that each of the following transactions would have upon cash and net income.

The first transaction has been completed as an example.


  Cash  Income

(a) Purchased $100 of supplies for cash.  -$100   $ 0

(b) Recorded an adjusting entry to record use of $20 of the above supplies.

(c) Made sales of $1,300, all on account.

(d) Received $800 from customers in payment of their accounts.

(e) Purchased equipment for cash, $2,500.

(f) Recorded depreciation of building for period used, $600.

BE4-2 The ledger of Hubbard Company includes the following accounts. Explain why

each account may require adjustment.

(a) Prepaid Insurance.

(b) Depreciation Expense.

(c) Unearned Service Revenue.

(d) Interest Payable.

BE4-3 Dicker Company accumulates the following adjustment data at December 31.

Indicate (1) the type of adjustment (prepaid expense, accrued revenue, and so on) and

(2) the status of the accounts before adjustment (overstated or understated).

(a) Supplies of $400 are on hand. Supplies account shows $1,600 balance.

(b) Service Revenue earned but unbilled total $700.

(c) Interest of $300 has accumulated on a note payable.

(d) Rent collected in advance totaling $1,100 has been earned.

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