Orwell Company accumulates the following adjustment data at December 31. 1. Serv

Question

Orwell Company accumulates the following adjustment data at December 31.

1. Services provided but not recorded total $1,420. 2. Supplies of $300 have been used. 3. Utility expenses of $225 are unpaid. 4. Unearned service revenue of $260 is recognized for services performed. 5. Salaries of $800 are unpaid. 6. Prepaid insurance totaling $380 has expired.
For each of the above items indicate the following. (Answer for account balances before adjustment should be entered in alphabetical order.)

(a) The type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense). (b) The status of accounts before adjustment (overstatement or understatement).

Explanation / Answer

(a) Service Revenue earned but unbilled totals $600.
Accrued Revenue
Accounts Receivable (Assets) understated, Revenue (Net income) understated
(b) Store supplies of $300 are on hand. Supplies account shows $1,900 balance.
Prepaid Expense
Supplies (Assets) overstated, Supplies Expense (Expenses) understated.
(c) Utility expenses of $275 are unpaid
Accrued Expense
Utility Expense (Expenses) understated, Liabilities understated.
(d) Service revenue of $490 collected in advance has been earned.
Unearned Revenue
Revenues understated, Liabilities overstated
(e) Salaries of $800 are unpaid.
Accrued Expense
Salaries Expense (Expense) understated, Liabilities understated.
(f) Prepaid insurance totaling $400 has expired
Prepaid Expense
Insurance Expense (Expense) understated, Prepaid Insurance (Assets) overstated.

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