Reference no: EM13546441

Adjustments and financial statements

Several years ago, your brother opened Magna 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 financial statements (shown below) prepared from accounts maintained by a part-time bookkeeper.

Magna Appliance Repairs Income Statement For the Year Ended October 31, 2014
Service revenue .		$675,000
Less: Rent paid	$187,200
Wages paid .	148,500
Supplies paid	42,000
Utilities paid	39,000
Insurance paid . .	21,600
Miscellaneous payments	54,600	492,900
Net income		$182,100

Magna Appliance Repairs Balance Sheet October 31, 2014
Assets
Cash		$95,400
Amounts due from customer		112,500
Truck		332,100
Total assets		$540,000
Equities
Capital		$100,000
Retimed earning		440,000
Total equities		$540,000

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 statements. 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.