Continuing Case Solution
Chapter 3
Memorandum
To: Eric Conner and Phil Martin, CM
From: L. Harbach
Re: Adjusting Entries and Accrual Accounting
Date: January 5, 2013
At the end of the year, it is critical to perform adjusting entries to ensure that the
company records revenues and expenses in the period in which they are earned/
incurred and that balance sheet accounts have the correct balances. I made the
following adjusting entries in order to properly report revenues and expenses
earned/incurred during the year and related balance sheet accounts as of year–
end:
An adjustment was made to the unearned revenue account to recognize
e that had been earned by year-end.
These adjustments allow the company to present its financial statements using
the accrual basis of accounting. The accrual basis of accounting allows external
based on the dates when income is
Continuing Case Solution
Additional Activity: Extend your accounting knowledge
Financial Assessment
2012 2011
Current assets / Current
liabilities
$2,126,086 / $1,722,962 =
1.23
$1,483,062 / $845,198
= 1.75
CM2
means that the company has the liquidity to cover its current liabilities. In other
words, CM2 has slightly more current assets each year than current liabilities.
This ratio has declined and is something that management needs to monitor to