Multiple Choice
Which of the following is a nonoperating item that requires adjustment to net income under the indirect method when preparing the statement of cash flows?
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3. Accrual Accounting Concepts
Adjusting Entries: Accrued Revenues
Multiple Choice
Which of the following does NOT require an adjusting entry for accrued revenues at year-end?
A
Interest has been earned on a note receivable but not yet received.
B
A customer paid cash in advance for services to be performed next year.
C
Services have been performed but not yet billed to the client.
D
Rent revenue has been earned but not yet collected.
Verified step by step guidance1
Step 1: Understand the concept of accrued revenues. Accrued revenues are revenues that have been earned but not yet received in cash or recorded. Adjusting entries are required to recognize these revenues in the accounting period they are earned.
Step 2: Analyze each option provided in the problem to determine whether it involves accrued revenues and requires an adjusting entry. For example, interest earned on a note receivable but not yet received is an accrued revenue and requires an adjusting entry.
Step 3: Evaluate the option 'A customer paid cash in advance for services to be performed next year.' This transaction involves unearned revenue, not accrued revenue. Unearned revenue is a liability and does not require an adjusting entry for accrued revenues.
Step 4: Review the other options, such as 'Services have been performed but not yet billed to the client' and 'Rent revenue has been earned but not yet collected.' Both of these involve accrued revenues and require adjusting entries to recognize the earned revenue.
Step 5: Conclude that the correct answer is the option involving unearned revenue ('A customer paid cash in advance for services to be performed next year'), as it does not pertain to accrued revenues and does not require an adjusting entry for accrued revenues.
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