Financial Bookkeeping: Adjusting Entries
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In reviewing the accounts of Keri Ann Co. at the end of the year, you discover that adjusting entries have not been made.
Instructions
Write a memo to Keri Ann Nickels, the owner of Keri Ann Co., that explains the following: the nature and purpose of adjusting entries, why adjusting entries are needed, and the types of adjusting entries that may be made.
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This solution provides a sample memo regarding adjusting entries.
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Question: In reviewing the accounts of Keri Ann Co. at the end of the year, you discover that adjusting entries have not been made.
Instructions
Write a memo to Keri Ann Nickels, the owner of Keri Ann Co., that explains the following: the nature and purpose of adjusting entries, why adjusting entries are needed, and the types of adjusting entries that may be made.
Answer:
Nature and Purpose of adjusting entries:
Most of the business enterprises use accrual basis of accounting. Revenue recognition principal states that the revenue is recognized when income is actually earned. Expenses are recorded when service is actually performed whether cash is paid or not. In other words revenues are recognized and expenses recorded when they are recognized or incurred in the related accounting period. Therefore adjusting entries are made to adjust the accounts at the end of the period. This process ...
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