accounting IP 2 - Accounting Individual Project 2 Cary Kumm...

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Accounting Individual Project 2 Cary Kumm American Intercontinental University Project: You are an accountant in a medium-sized manufacturing company. You have been asked to mentor an accounting clerk who is new to your accounting department. Explain why adjusting entries are necessary. (2) Describe the 4 types of adjusting entries, and provide a manufacturing industry example of each. (3) Describe how these entries would be recorded in a computerized accounting system. (4) Describe 2 ethical issues that could result from the preparation of these manufacturing entries. Answers: (1) In a manufacturing company it is necessary to make adjustment entries to show revenue, expenses, depreciation of company assets, allowances for bad debts, and any inventory adjustments. (2) The four types of adjustment entries are (a ) Accrued revenues - which are also called accrued assets. This is revenue that has been earned by the company but has not been paid or recorded. (b) Unearned revenues- which are also called deferred revenues. (c) Accrued expenses- which are also called accrued liabilities. These are expenses the company already has but have not yet been paid. (d) Prepaid expenses- which are also called deferred expenses. These are expenses that are paid in cash and recorded as assets before they are used. Examples of each adjustment entry:
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(a) Your company provided $2,000.00 worth of survey services to the “Hands On Manufacturing Company” this past month, and today is the last day of the accounting period. The survey services will be billed and collected next month, this will be past when you will be completing the financial statements, and closing entries. So you would need to do an adjusting entry to account for the unbilled services: Adjusting Entry (accrued revenue) Debits Credits Accounts receivable 2,000.00 Survey Service Fees Earned 2,000.00 (b) Hands On Manufacturing Company signed a service contract for one year to your company for $60,000. They paid for this contract in full in advance.
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