At the end of the current year, $22,650 of fees have been earned but have not been billed to clients. Required: A. Journalize the adjusting entry to record the accrued fees on December 31. Refer to the Chart of Accounts for exact wording of account titles. B. If the cash basis rather than the accrual basis had been used, would an adjusting entry have been necessary?

A. Adjusting Journal Entries:

Dec. 31, 2019:

Debit Accounts Receivable $22,650

Credit Service Fee Revenue $22,650

To record fees earned, but not yet billed to clients.

B. No. If the cash basis rather than the accrual basis had been used, an adjusting entry would not have been necessary.

Explanation:

Adjusting entries are only required to align the cash-basis accounting records to the accrual basis.  Adjustments are made for prepayments of expenses, unpaid expenses, deferred revenue, unearned earned and earned revenue, and depreciation charges.  For an entity operating on a cash basis, adjusting entries are not required.

Adjusting entries ensure that accounting records comply with the accrual concept and matching principle of generally accepted account practises.  The requirement under this concept with the matching principle is to accrue and match expenses and revenue to the related revenue and expenses and period.

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