How to finish this question? PIACIU Exercise 17.1: Prestige relates to suits to
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How to finish this question?
PIACIU Exercise 17.1: Prestige relates to suits to be deliv 1. Prestige Suits sells quality custom-made suits on a prepaid basis. In the quarter ended 1, 2005, the business received $42 000 in advance payments for suits. Of this amount $4 000 s to be delivered in the month of April 2005. The business uses the liability approach cording revenues received in advance. to the amount of revenue that would be reported for the quarter ended 31 March 2005 under accrual accounting. Prepare the general journal entries required to record the adjusting and closing entries relat- ing to the sales revenue for the quarter. Prepare all the relevant entries for the quarter ended 31 March 2005 that would be made to the prepaid sales revenue and sales revenue accounts . d State, and explain, the effect on the firm's reports if the balance-day adjustment was not recorded.Explanation / Answer
a-Amount of revenue to be recorded in Quarter ending Mar 31 2005 = 40000-4000 = 36000
b- debit prepaid sales revenue 36000
credit sales revenue 36000
Closing entries for sales
Debit sales revenue 36000
credit income summary 36000
c-
General Ledger
c-
prepaid sales revenue
sales revenue
36000
cash
40000
balance
4000
total
40000
total
40000
balance
4000
sales revenue
income summary
36000
prepaid sales revenue
36000
d-
if the balance date adjustment is not made profitability would be low due to non recognition of sales revenue and on the other hand balance in current liabilities would not be reduced as prepaid sales revenue does not decrease
General Ledger
c-
prepaid sales revenue
sales revenue
36000
cash
40000
balance
4000
total
40000
total
40000
balance
4000
sales revenue
income summary
36000
prepaid sales revenue
36000
d-
if the balance date adjustment is not made profitability would be low due to non recognition of sales revenue and on the other hand balance in current liabilities would not be reduced as prepaid sales revenue does not decrease
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