When are cash and accrual basis measures different? When are they the same?
Each of the following independent situations relates to information available on the last day of the year. Each involves an adjustment that must be made to the accounting system before financial statements can be prepared. Show the effects of each adjusting entry on the accounting system.
A. A 15,000 note payable, incurring 8% interest, has beenoutstanding the entire year. The note payable was properly recorded when it arose.
B. A 3,000 check was received 2 months ago from a tenant that subleases part of a building. The amount was for 6 months rent beginning the day the check was received. When received,the entire amount of the check was recorded in a liability account titled Unearned Rent.
C. Exactly halfway through the year just ended, the companypurchased a 2-year fire insurance policy for 8,000. When thepolicy was purchased, the entire amount was recorded in PrepaidInsurance account.
D. Wear and tear on the buildings and machinery for theyear is estimated to be 35,000.