ACCT Homework Questions – Chapter 5
Preparation
DQ5.1
Revenue is the inflow of financial benefits in exchange for the provision of goods and services
(cash may not have been exchanged at same time revenue is recorded). Cash receipts,
however, is the cash that a company receives.
DQ5.5
Earning of revenue or incurrence of an expense is not necessarily accompanied by inflows or
outflows of cash in the same period. While cash accounting records events when cash is
physically given or received, accrual accounting records transactions at the time they occur.
Tutorial
DQ5.8
The purpose of accounting adjustments is to make sure that assets and liabilities are correctly
recognised at the end of the accounting period.
DQ5.9
Expiration of assets
 Reduction in asset (e.g. prepayment, equipment), increase in expense
 Reduced profit for the period
Unearned revenue
 Liability reduced, and revenue recognised once goods/services are delivered
 Increased profit for the period
Accrual of unrecorded expenses
 Included in current liabilities (‘payables’), and expense increases
 Reduces profit for the period
Accrual of Unrecorded revenues
 Increase in revenue and receivables
 Receivables decrease, and assets increase when money owed is received
 Increase in profit for the period
DQ5.21
Prepayments – By not completing expiration of assets adjustment, the company’s expenses will
be understated resulting in overstated profit
Unearned revenue - If revenues were recognised all at once (before goods and services are
delivered) revenue and therefore profit would initially be overstated but then understated for
later periods
Accrued expenses – Not recording accrued expenses will overstate profits
Accrued revenue – Unnecessarily recording accrued revenue will overstate profits
P5.2
Greenfingers Ltd
Income statement for August 2016
Revenue
($)
Consulting revenue
10 000
Expenses
Wages expense
Electricity expense
Interest expense
Insurance expense
Rent expense
Depreciation expense
Other expenses
800
100
4 800
50
300
1000
400
Net profit
2550
Greenfingers Ltd
Cash flow statement for August 2016
Revenue
($)
Consulting revenue
4000
Expenses
Wages expense
Insurance expense
Rent expense
Other expenses
Net loss
600
600
900
400
34 500
P5.3
State Entertainment Journal entries August 2014
1 August 2014
Dr Accounts receivable
300 000
Cr Unearned Revenue
300 000
4 August 2014
Dr Prepaid venue expense 80 000
Cr Cash
80 000
29 August 2014 Dr Unearned revenue
300 000
Cr Concert revenue
300 000
Dr Venue expense
80 000
Cr Prepaid venue expense
80 000
P5.19
Balance sheet
Assets
Liabilities
a) -1400
b) +15000
c)
+1500
d)
e)
Equity
-1400
+15000
-1500
Income statement
Revenues
Expenses
-1400
-15000
-1500
Net profit
-1400
+15000
-1500