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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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For each of the four categories of adjusting entries. describe the business activity that produces circumstances requiring adjustment.

To determine

Concept Introduction:

Steps in Accounting cycle: Accounting cycle is the series of steps of accounting process which processes transactions into financial statements. The steps of accounting cycle are as follows:

  1. Collecting transactions and events.
  2. Recording journal entries for transactions and events.
  3. Posting the journal entries into ledgers.
  4. Preparing unadjusted trial balance from ledger balances.
  5. Recording adjusting entries.
  6. Posting adjusting entries into ledgers and Preparing adjusted trial balance.
  7. Preparing financial statements; Income statement, balances sheet, statement of owner’s equity and Cash flow statements.
  8. Preparing Closing entries to close temporary accounts.
  9. Preparing post closing trial balance.
  10. Recording reversing journal entries (Optional).

To Indicate:

The business activity for each type of adjusting entry.

Explanation

Adjusting entries are required to adjust the accounts according to the accrual basis of accounting at the end of the every accounting period. For example: Recording the depreciation expense on depreciable assets at the end of each accounting year.

The business activity for each type of adjusting entry is explained as follows:

  • Accrued revenue: The adjusting entry for Accrued revenue is prepared to record the revenue earned during the period.
  • Accrued Expense: The adjusting entry for Accrued expense is prepared to record the expenses incurred during the period...
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