Question

On December 28, I. M. Greasy, Catering completed $600 of catering services. As of December 31, the customer had not been billed nor had the transaction been recorded. Demonstrate the required adjusting entry by choosing the correct statement below.

Answer 1

Answer:

The question is incomplete. The multiple choice options are missing. In any case, the answer for the adjusting entry is as follows:

Debit Accounts Receivable         $600

              Credit Sales Revenue                              $600

Explanation:

Financial transactions must be reported in the period they occur, this is encapsulated by the matching principle in accounting. It is done so as to reflect accurate information in the year end financial statements. The sales occurred during the current financial period and should be recorded as such by crediting the sales revenue account. This adjustment to the financial records is allowed to reflect accurate information regarding the transactions that occurred IN the period these transactions occurred. The accounts receivable/debtors' account is debited as the customer who received the catering services is a debtor to I.M. Greasy. The bill should be sent to the debtor to notify them of their payment obligation to I.M. Greasy at year end. Since the amount has not been received at year end from the customer, it cannot be recorded as a cash asset, rather, it is acknowledged as a debt asset.