chapter 2 homework - Kelly Legner Acct 815 Chapter 2...

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Kelly Legner Acct 815 Chapter 2 Problems 15. The nail soup is stating that when the company is using the accrual method that before it can do the financial statements for the year it must make some adjustments. Revenues are recognized when the deal is made. Expenses are usually prepaid and supplies are on the accrual method. So the accountant must adjust these accounts or take out the nails in the soup before he can arrive at the right number. Revenues must be entered from being payable to the future to what was actually given so that the number is accurate. Also for supplies it must be adjusted because the number on the books isn’t what is actually accounted for because these are used up or sold. As for prepaid expenses these items expire or are used up for the year so they must be adjusted to show what the true balance really is. So by doing this the nails are being taking out of the soup so all that is left at the end is the broth. This doesn’t always work because of accounting distortion and estimation errors so there will more likely be nails in the soup at the end. 16.
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chapter 2 homework - Kelly Legner Acct 815 Chapter 2...

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