Adjustments are very important in accrual-based accounting in ensuring that the balances of accounts are correct before preparation of the financial statements. In this Discussion, you will look at deferrals and accruals and how they affect the financial statement framework.
This Discussion is based on Exercise 3-1 in the text on page 115.
Derma Care is owned and operated by Marilyn McColley, the sole stockholder. During February 2013, Derma Care entered into the following transactions:
Marilyn McColley invested $30,000 in Derma Care in exchange for Capital stock.
Paid $7,200 on February 1 for an insurance premium on a 1-year policy.
Purchased supplies on account, $1,200
Received fees of $43,500 during February.
Paid expenses as follows: wages, $8,000; rent, $2,500; utilities, $1,000; and miscellaneous, $850.
Paid dividends of $5,000
Record the transactions using the integrated financial statement framework. Tell what account and element of the accounting equation (assets, liabilities, stockholders equity) is affected and the amount and if it increased or decreased.