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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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Chapter
Section
BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

Delia Alvarez, owner of Delia’s Lawn Service, wants to borrow money to buy new lawn equipment. A local bank has asked for financial statements. Alvarez has asked you to prepare financial statements for the year ended December 31, 20--. You have been given the unadjusted trial balance on page 175 and suspect that Alvarez expects you to base your statements on this information. You are concerned, however, that some of the account balances may need to be adjusted. Write a memo to Alvarez explaining what additional information you need before you can prepare the financial statements. Alvarez is not familiar with accounting issues. Therefore, explain in your memo why you need this information, the potential impact of this information on the financial statements, and the importance of making these adjustments before approaching the bank for a loan.

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To determine

Write a memo to the Person A explaining the additional information that is needed before preparing the financial statements and the importance of making the adjustments before approaching the bank for loan.

Explanation

Memo

From,

ABC

To,

Person A

Sub: Additional information that is needed before preparing the financial statements and the importance of making the adjustments before approaching the bank for loan- reg.

Person A,

Before applying for bank loan Person D should look into the adjusting entries as they considered to  be  important while applying  for loan, because  the  bank wants  a proper matching of expenses and revenues for  the year and they also need proper measures of assets and liabilities as  of December 31, if the Person A fails to provide the correct information the bank will have an impression  that Person A is not knowledgeable about the business matters and might decline the offer to lend loan to the Person A.

Some of the additional information that should be enclosed while preparing the financial statement is as follows:

  • Information relating to supplies like cost of the supplies remaining at the end of the year, the amount that must be reported as an asset, the amount of supplies that must be recognized as an expense.
  • The amount of prepaid insurance that must be applied to the insurance next year, the amount of prepaid insurance that should be reported as an asset and the left out amount should be denoted as expense...

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