Page 137 - Accounting Principles (A Business Perspective)

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Accumulated 4,000
b. Deprecation expense – Trucks 3,000
Trucks 3,000
c. Deprecation expense – Trucks 3,000
Accumulated deprecation – Trucks 3,000
d. Accumulated deprecation trucks 3,000
Deprecation expense – Trucks 3,000
A company received cash of USD 24,000 on 2010 October 1, as subscriptions for a one-year period from that

date. A liability account was credited when the cash was received. The magazine is to be published by the company
and delivered to subscribers each month. The company prepares adjusting entries at the end of each month because
it prepares financial statements each month. The adjusting entry the company would make at the end of each of the
next 12 months would be:
a. Unearned subscription fees 6,000
Subscription fee revenue 6,000
b. Unearned subscription fees 2,000
Subscription fee revenue 2,000

c. Unearned subscription feeds 18,000

Subscription fee revenue 18,000

d. Subscription fee revenue 2,000
Unearned subscription fees 2,000
When a company earns interest on a note receivable or on a bank account, the debit and credit are as follows:
Debit Credit
a. Accounts receivable Interest revenue
b. Interest receivable Interest revenue
c. Interest revenue Accounts receivable
d. Interest revenue Interest receivable
If USD 3,000 has been earned by a company’s workers since the last payday in an accounting period, the
necessary adjusting entry would be:
a. Debit an expense and credit a liability.
b. Debit an expense and credit an asset.
c. Debit a liability and credit an asset.

d. Debit a liability and credit an expense.
Now turn to “Answers to self test” at the back of the book to check your answers.
Questions

➢ Which events during an accounting period trigger the recording of normal journal entries? Which
event triggers the making of adjusting entries?
➢ Describe the difference between the cash basis and accrual basis of accounting.
➢ Why are adjusting entries necessary? Why not treat every cash disbursement as an expense and
every cash receipt as a revenue when the cash changes hands?

➢ “Adjusting entries would not be necessary if the ‘pure’ cash basis of accounting were followed
(assuming no mistakes were made in recording cash transactions as they occurred). Under the cash

basis, receipts that are of a revenue nature are considered revenue when received, and expenditures
that are of an expense nature are considered expenses when paid. It is the use of the accrual basis of

Accounting Principles: A Business Perspective 138 A Global Text