Question: Several years ago, your brother opened Ready
Several years ago, your brother opened Ready Appliance Repairs. He made a small initial investment and added money from his personal bank account as needed. He withdrew money for living expenses at irregular intervals. As the business grew, he hired an assistant. He is now considering adding more employees, purchasing additional service trucks, and purchasing the building he now rents. To secure funds for the expansion, your brother submitted a loan application to the bank and included the most recent ï¬nancial statements (shown below) prepared from accounts maintained by a part-time bookkeeper.
After reviewing the ï¬nancial statements, the loan ofï¬cer at the bank asked your brother if he used the accrual basis of accounting for revenues and expenses. Your brother responded that he did and that is why he included an account for “Amounts Due from Customers.†The loan ofï¬cer then asked whether or not the accounts were adjusted prior to the preparation of the statements. Your brother answered that they had not been adjusted.
a. Why do you think the loan officer suspected that the accounts had not been adjusted prior to the preparation of the statements?
b. Indicate possible accounts that might need to be adjusted before an accurate set of financial statements could be prepared.
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READY APPLIANCE REPAIRS Income Statement For the Year Ended March 31, 20Y6 Service revenue Less: Rent paid. Wages paid . Supplies paid Utilities paid Insurance paid Miscellaneous payments Net income .... $182,500 $41,200 34,750 7,000 6,500 3,600 9,100 102,150 $ 80,350 READY APPLIANCE REPAIRS Balance Sheet March 31, 20Y6 Assets Cash...... $ 25,900 Amounts due from customers. 18,750 Truck....... Total assets 55,350 $100,000 Equities Owner's equity... $100,000
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