Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 3 Accrual Accounting Concepts 147

After reviewing the financial statements, the loan officer 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

officer then asked whether or not the accounts were adjusted prior to the preparation of the state-

ments. Your brother answered that they had not been adjusted.

1. Why do you think the loan officer suspected that the accounts had not been adjusted
   prior to the preparation of the statements?


2. Indicate possible accounts that might need to be adjusted before an accurate set of financial
   statements could be prepared.

Compare the balance sheets of two different companies, and present to the class a summary of

the similarities and differences of the two companies. You may obtain the balance sheets you

need from one of the following sources:

1. Your school or local library.


2. The investor relations department of each company.


3. The company’s Web site on the Internet.


4. EDGAR (Electronic Data Gathering, Analysis, and Retrieval), the electronic archives of fi-
   nancial statements filed with the Securities and Exchange Commission. The EDGAR ad-
   dress is http://www.sec.gov/edgarhp.htm. To obtain annual report information, click on
   “Search for Company Filings,” then click on “Companies & other Filers.” Type in a company
   name on the “EDGAR Company Search” form. EDGAR will list the reports available for the
   selected company. A company’s annual report (along with other information) is provided

Activity 3-5

Compare balance sheets

Chestnut Television Repair

Income Statement

For the Year Ended August 31, 2006

Service revenue $83,280

Less: Rent paid $20,000

Wages paid 18,500

Supplies paid 5,100

Utilities paid 3,175

Insurance paid 2,400

Miscellaneous payments 2,150 51,325

Net income $31,955

Chestnut Television Repair

Balance Sheet

August 31, 2006

Assets

Cash $11,150

Amounts due from customers 6,100

Truck 30,000

Total assets $47,250

Equities

Stockholders’ equity $47,250