Q 3-4 - difference of $660 since only one month of service...

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Q 3-4 Companies’ financial statements keep records of all transactions that affect the different accounts. Some of these transaction’s effects often carry on to a different period as to the one being illustrated in the statement. The cash payment related to the transaction in question is made or received either before or after revenues are recognized (Easton, Halsey, McAnally,Hartgraves & Morse, 2010). In those cases it is necessary to make an adjustment in order to keep a proper balance. There are four different types of adjustments: Prepaid expenses: A company issues a payment of $720 in cash for a full year of internet service on December 1 st 2011. Without the proper adjustment the statement would reflect a
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Unformatted text preview: difference of $660 since only one month of service ($60) has become an expense. Unearned Revenues: A company receives $500 cash advanced payment for a home repair job. While the cash asset account will be debited the full amount during the current period an adjustment is necessary to reflect cost of supplies and other expenses as well as to record the correct period where the cash is actually earned. Accrued expenses: A company receives an invoice for a service received but payment is not due until after the balance sheet statement is prepared. Accrued revenues: A company performs a job (cash earned) and issues an invoice. Cash will be received at a later date....
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