The Ritz Manor is a popular seaside resort. A double room costs $220 for one night. In order to reserve a room, guests must pay one night¿s stay in advance. On each floor of the hotel, Vendalite Company operates vending machines with energy bars, juices, and other snacks for guests. Vendalite stocks the machines and collects revenue every week. Total average weekly revenue from these machines is $720. The Ritz Manor is entitled to 30% of the revenue from the machines. Vendalite sends a check to the Ritz Manor once at the end of each quarter for the resort¿s share of the revenue.

Based on this information, what type of adjusting entries does the Ritz Manor have?

How are the amounts of these adjustments determined?

Which accounts are affected

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The Ritz Manor is a popular seaside resort. A double room costs $220 for one night. In order to reserve a room, guests must pay one night¿s stay in advance. On each floor of the hotel, Vendalite Company operates vending machines with energy bars, juices, and other snacks for guests. Vendalite stocks the machines and collects revenue every week. Total average weekly revenue from these machines is $720. The Ritz Manor is entitled to 30% of the revenue from the machines. Vendalite sends a check to the Ritz Manor once at the end of each quarter for the resort¿s share of the revenue.

Based on this information, what type of adjusting entries does the Ritz Manor have?

How are the amounts of these adjustments determined?

Which accounts are affected

Based on the information, the type of adjusting entries the Ritz Manor must have is unearned revenue. The Ritz Manor receives a one night pay in advance for a reservation. “The term unearned revenue refers to cash received in advance of providing products and services” (Larson, Wild & Chiapetta, 2005, pg. 101). Also, the Vendalite Company’s stocking of the vending machines is a unearned revenue. In turn, it can also be an earned revenue. “As products or services are provided, the unearned revenue becomes earned revenues” (Larson, Wild & Chiapetta, 2005, pg. 101).

The amounts of these adjustments are determined by how much the Ritz Manor charges for one night in advance and what they earn for the vending machines. “The process of adjusting accounts involves analyzing each account balance and the transactions and events that affect to determine any needed adjustments” (Larson, Wild & Chiapetta, 2005, pg. 97).

The balance sheet accounts are affected by the adjustments. “Each adjusting entry affects one or more income statement accounts and one or more balance sheets accounts (but not cash)” (Larson, Wild & Chiapetta, 2005, pg. 105).



Reference
Larson, K.D. Wild, J.J. Chiapetta, B. (2005). Fundamental Accounting Principles.
Chapter 3, pgs. 93-133. New York: McGraw-Hill Irwin.

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