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Q: Accounts Year-End Analysis ( Answered 4 out of 5 stars,   0 Comments )
Question  
Subject: Accounts Year-End Analysis
Category: Business and Money > Accounting
Asked by: ydorb-ga
List Price: $15.00
Posted: 28 Jun 2006 12:51 PDT
Expires: 28 Jul 2006 12:51 PDT
Question ID: 741815
Year-End Analysis of Accounts
An analysis of cash records and account balances of Bennett, Inc., for
2006 is as follows:
Account Account Cash
Balances Balances Received or
Jan. 1, 2006 Dec. 31, 2006 Paid in 2006
Wages Payable . . . . . . . . . . . . . . . . . $2,600 $3,000
Unearned Rent . . . . . . . . . . . . . . . . . 4,500 5,000
Prepaid Insurance . . . . . . . . . . . . . . . 100 120
Paid for wages . . . . . . . . . . . . . . . . . $29,600
Received for rent . . . . . . . . . . . . . . . 12,000
Paid for insurance . . . . . . . . . . . . . . 720
Required:
Determine the amounts that should be included on the 2006 income
statement for (1) wages
expense, (2) rent revenue, and (3) insurance expense.
Answer  
Subject: Re: Accounts Year-End Analysis
Answered By: tox-ga on 28 Jun 2006 15:35 PDT
Rated:4 out of 5 stars
 
Hi there,

The key to this problem is what is called the Matching Princple. 
Matching Principle states two things:
1. Revenues are recorded when earned. 
2. Expenses are recorded when incurred. 

Having said that, let's get into the question.

(1) Wages.
The wages payable increased from $2,600 to $3,000.
Thus, aside from what Bennett paid that year, they incurred $400 more
in wage expense during 2006.  Therefore, the amount that should be
included in the income statement is:
$29,600 + $400 = $30,000

(2) Rent revenue
Bennett received $12,000 for rent but their unearned rent account
increased by $500.  So, the actual rent revenue -earned- during 2006
is 500 less than what they were paid for.  Thus, the amount that
should be included in the income statement is: $11,500.

(3) Insurance expense
Bennett paid $720 for insurance but the prepaid insurance account
increased by $20 so they paid $20 more than the amount of expense that
they incurred.  Thus, the amount that should be included in the income
statement is $720 - $20 = $700.

I hope this has helped and please feel free to ask for any clarification.

Cheers,
Tox-ga
ydorb-ga rated this answer:4 out of 5 stars
Thanks! This really helps me understand what I am trying to do!

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