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Hallo,
I am wondering what logic I should use to approach this question to come to the answer, could you give me some hints, why to pick B, and exclude the other answers:
Which of the following would not typically be used as an adjusting entry?
A) Prepaid Rent/ Rent Expense
B) Cash/Unearned Revenue
C) Interest Expense/Interest Payable
D) Unearned Revenue/Service RevenueAnswer: B) Cash/Unearned Revenue
– for me all maybe adjusting, because each one looks like a precursor of the other.
Thank you!
Russell: Thank you for answering the question. However I will be grateful if you can restrict yourself to answering in the general F3 forum – this forum is Ask the Tutor and you are not the OpenTuition tutor 🙂
Hallo Russel,
Thank you for the reply, interestingly I know that most businesses use the accrual basis for accounting.
Also, I understood from your saying that cash is not an adjusting entry, because we always record it when we receive it.
@Mr. Moffat
– probably the answer that this entry is wrong, is because it uses two balance sheets a/cs, and it should use as least one I/S a/c, is there such rule?
Thank you!
Hallo Mr. Moffat,
I have another example with adjusting entry:
On July 1, 2012, Charlie Co. paid $18,000 to Rent-An-Office for rent covering 18 months from July 2012 through December 2013. What adjusting entry should Charlie Co. record on December 31, 2012?
Answer: Rent Expense 6,000/Prepaid Rent 6,000
– concerning the answer: why prepaid rent isn’t 12,000?
Thank you!
Firstly, you say that most businesses use the accrual basis. It is not a choice – under International Accounting Standards, businesses must use the accrual basis!!
With regard to your example, assuming that you have copied the question correctly, then the prepayment is indeed 12,000!
In addition, the entry is the wrong way round!!!!It should be Dr Prepaid Rent; Cr Rent expense (with 12,000)
May I ask, if I understand correctly the example:
1. What is meant by adjusting entry?
2. Why do you say:
Dr Prepaid Rent (with how much?)
Cr Rent expense 12000because my logic goes like this:
at 31st of Dec.
Dr Rent expense 6000
Dr Prepaid expense 12000
Cr Cash 18000
– but I don’t know it this is called an adjusting entry, or it is sth. else?Thank you!
Russell:
I actually think that you misunderstood me 🙂
My second response was to mp-open’s question. He wrote that ‘most businesses use the accrual basis’. Although I fully accept the point that you have made, this forum is for questions about the ACCA Paper F3 exam, and the ACCA exam tests on International Standards. They do not ever ask about what adjustments would need to be made if the business had used cash accounting – a qualified accountant would have to use the accruals basis.
(Which, obviously, requires the adjustments at the end of the year for accruals and prepayments.)With regard to your last sentence, I take great offence. As a qualified accountant I am bound by my institute to act professionally, and to politely ask you not to answer in the ‘Ask the ACCA tutor’ forum but to answer in the general F3 forum is not unprofessional in the slightest, and nor was it confrontational! For you to suggest otherwise is ridiculous.
I founded this website to provide as much help as possible, free of charge, to students studying for the ACCA exams. You write yourself that you are not an ACCA tutor (and you are certainly not the OpenTuition ACCA tutor) which is why I asked you to help in the general F3 forum (which is for everyone to help each other) and not in this forum (which is called “Ask the ACCA Tutor”)
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