What are the balance sheet and income statement accounts

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Reference no: EM13904613

Accrual adjustments and accounting records

Governments at local and national level are examining new ways of charging motorists directly for road use. One proposal is based on an automatic vehicle identification (AVI) system. A device is fitted to a car's windscreen which enables a radio signal from a roadside beacon to identify the car as it's moving.

A problem for governments is how to collect the toll from the user of the vehicle in an efficient way. An individual may well drive cars other than the one(s) he or she owns. Two alternatives have been proposed. The first is a ‘smart card'. An individual can get into any car, insert his smart card into a device connected to the AVI and have the bill for road use charged to his account. He then settles his account monthly or quarterly.

The second alternative is the prepaid card. The card entitles the buyer to a specified number of ‘road use units'. It works in the same way as the smart card except that charges for road use are deducted directly while the card is in radio contact with the AVI. (As The Economist (7 August 1993) points out, one advantage of the prepaid card is that it is more private. There is no record of where a particular driver has been and when.)

Required

Consider the accounting implications of the two charging methods for the company collecting the road tolls. What are the balance sheet and income statement accounts it must set up in its books? Show the entries for road use and payment (not necessarily in that order) under the two methods.

Reference no: EM13904613

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