Anybody can help how to answer this question? cise 17.3: Canopies for Utes sells

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Anybody can help how to answer this question?

cise 17.3: Canopies for Utes sells custom-made modifications for utility vehicles. Because of nature of the business, it always require customers to prepay all orders, During the year ended 30 September 2005, the business had received a total of $234 000 from its customers. The manager of the business has determined that $222 000 of this amount had been earned by the end of the report- g period. Prepare the relevant adjusting and closing general journal entries on 30 September 2005. a b Prepare the two accounts affected by your adjusting entry in part a, showing all relevant entries. Is the statement of financial position affected by your adjusting entry in part a? If so, state the twofold effect of the adjusting entry. c d State the effect of your adjusting entry in part a on the firm's income statement.

Explanation / Answer

a) At the time of collection of advance amount, the journal entry should be:-

Cash Dr. $234,000

To Unearned Revenue $234,000

For the year ended 30 September, 2005, the total amount remained unearned is $12,000 ($234,000-$222,000). Thus the balance of liabilty of Unearned Revenue needs to be reduced to $12,000 at the end of the year (i.e. 30 September, 2005) and earned revenue of $222,000 needs to be recorded. Thus the adjusting entry would be as follows:-

Unearned Revenue Dr. $222,000

To Sales Revenue $222,000  

(To record the revenue earned during the year)

b) The two accounts affected by the above adjusting entry are Unearned Revenue A/c and Sales revenue A/c which is prepared as follows:-

Unearned Revenue A/c

Sales Revenue A/c

c) Yes the statement of financial position is affected by the above adjusting entry as the Unearned revenue is a liability shown under current liability in Statement of Financial position which gets reduced to $12,000 from $234,000. The second effect will be increase in sales by same amount of $222,000 which will be credited to Income statement and ultimately increase the retained earnings balance in statement of finacial position

d) The adjusting entry in part a will increase the sales revenue by $222,000 and credited to income statement.

Particulars Amount Particulars Amount To Sales Revenue $222,000 By Cash $234,000 To balance C/d $12,000

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