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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Adjusting entries for unearned and accrued fees

The balance in the unearned fees account, before adjustment at the end of the year, is $97,770. Of these fees, $82,220 have been earned. In addition, $34,250 of fees have been earned but have not been billed. Journalize the adjusting entries (a) to adjust the unearned fees account and (b) to record the accrued fees.

(a)

To determine

Adjusting entries:

Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle.  All adjusting entries affect at least one income statement account (revenue or expense), and one balance sheet account (asset or liability).

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

  • Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
  • Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

To prepare: The adjusting entry at the end of the year.

Explanation

The adjusting entry is as follows:

An adjusting entry for unearned fees revenue:

In this case, the business received cash in advance before the service performed to customer. So, the necessary adjusting entry that the business should record for the unearned fees revenue at end of the year is as follows:

Date Description

Post.

Ref

Debit

($)

Credit

($)

  Unearned fees revenue   82,220  
  Fees earned     82,220
  (To record the unearned fees revenue at end of the year)      

Table (1)

  • Unearned fees revenue is a liability, and it decreases the value of liability by $82,220, hence debit the unearned fees revenue for $82,220...

(b)

To determine

To prepare: The adjusting entry at the end of the year.

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