Practice prompt · Q:transactions-to-statements/adjustment-timing-001

Separate adjustment from settlement

Formative check on period assignment and later settlement of accrued revenue and expense.

Updated Sep 10, 2026 Review due Nov 6, 2026

Practice

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At December 31, a company adjusts for $5,400 of completed unbilled service and $1,900 of employee service payable in January. It collects the customer and pays the employees in January. Which explanation correctly separates December recognition from January settlement?

Choose the best answer. A Recognize both revenue and expense only in January because cash provides the first objective evidence of each event. B Adjust December without Cash; in January, collection exchanges Receivable for Cash and payment settles Payable with Cash, without repeating the December revenue or expense. C Record the December adjustments and then recognize the same revenue and expense again in January because each cash event is a new transaction. D Net the December revenue and expense into one receivable because only the $3,500 income effect survives into equity.

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Answer: B

December performance creates $5,400 of Accounts Receivable and Service Revenue. December employee service creates $1,900 of Wages Expense and Wages Payable. Neither adjustment uses Cash. January collection debits Cash and credits Accounts Receivable; January payment debits Wages Payable and credits Cash. The same December revenue and expense are not recognized again.