At the end of the current year, $19,900 of fees have been earned but not billed to clients.
• a. What is the adjustment to record the accrued fees? Indicate each account affected, whether the account is increased or decreased, and the amount of the increase or decrease.
• b. If the cash basis rather than the accrual basis had been used, would an adjustment have been necessary? Explain.
At the end of the current year, $19,900 of fees have been earned but not billed to clients.
a. What is the adjustment to record the accrued fees? Indicate each account affected, whether the account is increased or decreased, and the amount of the increase or decrease.
b. If the cash basis rather than the accrual basis had been used, would an adjustment have been necessary? Explain.
GFSHTH
a. To record the accrued fees, you would need to make an adjustment entry. The two accounts affected would be:
1. Accrued fees (an asset account) - increased
2. Fees earned (a revenue account) - increased
The amount of the increase would be $19,900, as that represents the fees that have been earned but not yet billed to clients.
The entry would be as follows:
Debit: Accrued fees $19,900
Credit: Fees earned $19,900
b. If the cash basis were used instead of the accrual basis, an adjustment would not be necessary. The cash basis recognizes revenue when cash is received, and in this case, the fees have not been billed to the clients. Since the accrual basis requires revenue to be recognized when earned, regardless of when cash is received, an adjustment is needed to record the accrued fees. However, the cash basis would not require this adjustment because revenue would only be recognized when cash is actually received from the clients.