Scenario
The Director of Accounting has some concerns about the month-end close cutoff procedures that are currently in place at County General Hospital and is looking to you for some recommendations. Their main concern is that not all revenues and expenses are recorded in the proper months. This is of particular concern because the fiscal year end (December 31st) is coming up, and the Director of Accounting does not want any audit adjustments.
Instructions
The director has formally reached out to you via email with a list of transactions that they are concerned about:
Start the memo with a paragraph that addresses VP level management. This should be opening sentences that explain why the transactions are being reviewed. Simply explaining the need for adjustments at the end of an accounting period can be included in this paragraph. Explain the difference between an accrual and deferral and why it makes a difference in adjusting as well
· The company delivered services in September $10,000 payment that was made in November. (accounts receivable/revenue; cash/accounts receivable)
· The company is 80% done on a $50,000 contract for services but have not billed the client yet.
· On December 1st the company purchased a one-year insurance policy on behalf of their executives for $12,000 and debited prepaid insurance. (Asset, pre-paid expense not yet used)
· The companies last pay period ends on December 24th. The biweekly payroll is consistent at $500,000 per pay period. (Accrued expense/Cash)
· Interest payment on the company bonds ($1,000,000 face value, 6%) is made semiannually on January 15th and July 15th.
· The company’s electric meter is read on the 15th of each month, and the bill is not received until the first of the following month. The electric bill is consistently running $5,000 per month. (expense/accounts payable) deferral
· The company utilizes a storage facility on the other side of town. The landlord, as part of an inducement to the company, has agreed to delay the December cash payment for use until January 15th of next year. The company signed a monthly rental agreement of $2,000 per month on December 1st. (Accounts Payable/Rental Expense) deferral
The direction has also asked the following questions:
· Will these transactions require an adjusting entry? Why?
· Is it an accrual or deferral and give your justification?
· What are the accounts that will be debited and credited for this entry?
The director closes the email by asking that you create a memo with your findings that they can take to the Vice President of Accounting.
***Mastery assignment must include the following:
1. A detailed memo with proper formatting; tone of the memo is specific for VP level management.
2. All correct answers for whether each of the transactions requires an adjusting entry or not and why the answer was chosen.
3. All answers were correct for each of the transactions regarding whether it is an accrual or deferral; included justification for each transaction.
4. Identifies all of the accounts that would be debited and credited for each of the entries.
They have a magnificent team. These people are always kind and willing to listen to your concerns or issues. Better yet, your assignment is always ready before the time, they usually send you a draft to double-check before they finalize your paper.
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