Trial balance and Adjustment.

[california]

Can someone please explain to me what I should do from A to D? I need to make adjustment to those expenses but I don't understand the wordings of it. File is attached.

 

[LYAK]

a. These expenses are treated as continuous transactions that cannot be recorded with regular journal entries because they would require constant journal entries; as such, these transactions are recorded via adjusting entries at a particular point in time. You can view the purchase of these assets as prepaid expenses, since you are essentially creating deferred expenses. You need to decide how much of these assets have been consumed at the desired time of entry (expense) and reduce the related asset.

b. Depreciation is treated in a similar manner to the transactions in section a.

c. Remember that expenses need to be recorded in the same period as the revenues they helped generate (matching concept). Under accrual accounting, expenses are recorded when incurred, regardless of when they are paid. In the situation of interest that has been incurred but not yet paid, an accrued expense is recorded. Even though the interest had not been paid, the expense has been incurred; in order to defer the recording of payment, a liability is created.

d. This situation is treated similarly to the situation in section c.

 

[california]

wow. Thanks a lot L. Greatly appreciated!

 

[LYAK]

a. These expenses are treated as continuous transactions that cannot be recorded with regular journal entries because they would require constant journal entries; as such, these transactions are recorded via adjusting entries at a particular point in time. You can view the purchase of these assets as prepaid expenses, since you are essentially creating deferred expenses. You need to decide how much of these assets have been consumed at the desired time of entry (expense) and reduce the related asset.

b. Depreciation is treated in a similar manner to the transactions in section a.

c. Remember that expenses need to be recorded in the same period as the revenues they helped generate (matching concept). Under accrual accounting, expenses are recorded when incurred, regardless of when they are paid. In the situation of interest that has been incurred but not yet paid, an accrued expense is recorded. Even though the interest had not been paid, the expense has been incurred; in order to defer the recording of payment, a liability is created.

d. This situation is treated similarly to the situation in section c.

In regard to situation b, I forgot to mention that instead of utilizing a liability account to record an entry, a contra-asset account is used to reduce the related asset.