Several years ago, your brother opened Granite Appliance Repairs. He made a small initial investment and added money from his personal bank account as needed. He withdrew money for living expenses at irregular intervals. As the business grew, he hired an assistant. He is now considering adding more employees, purchasing additional service trucks, and purchasing the building he now rents. To secure funds for the expansion, your brother submitted a loan application to the bank and included the most recent financial statements (shown below) prepared from accounts maintained by a part-time bookkeeper. 

After reviewing the financial statements, the loan officer at the bank asked your brother if he used the accrual basis of accounting for revenues and expenses. Your bother responded that he did and that is why he included an account for “Amounts Due from Customer”. The loan officer then asked whether or not the account were adjusted prior to the preparation of the statements. Your brother answered that they had not been adjusted.

a. Why do you think the loan officer suspected that the accounts had not been adjusted prior to the preparation of the statements?

b. Indicate possible accounts that might need to be adjusted before an accrete set of financial statements could be prepared.

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Granite Appliance Repairs Income Statement For the Year Ended July 31, 2012 Service revenue... Less: Rent paid..... Wages paid $225,000 $62,400 49,500 Supplies paid... Utilities paid Insurance paid Miscellaneous payments. 14,000 13,000 7.200 ... 164,300 18.200 $ 60,700 Net income.. Granite Appliance Repairs Balance Sheet July 31, 2012 Assets $ 31,800 Cash ... Amounts due from customers.. 37,500 Truck.... 110,700 Total assets $180,000 Equities Owner's equity. $180,000