BUA111: Chp. 3: Adjusting Entries Chapter 3 problems Dr. K.Moon

Introd. To Adjusting Entries Adjusting Entries are only needed before you prepare financial statements, usually at end of month They bring the account balances (T-Accounts) up-to- date so financial statements are correct Remember, t-accounts only need to have “correct”, up- to-date” balances when financial statements are prepared Very few accounts will need adjustment. Examples follow. Dr. K.Moon

Adjusting Entries: Supplies Adjusting entry for supplies The balance in the supplies account, before adjustment at the end of the year, is $3,915. Journalize the adjusting entry required if the amount of supplies on hand at the end of the year is $1,750. Dr. K.Moon

Solution Ex. 3–3 Supplies Expense 2,165 Supplies 2,165 Supplies used ($3,915 – $1,750). Dr. K.Moon

Adjusting Entries: Prepaid Insurance Adjusting entry for prepaid insurance The balance in the prepaid insurance account, before adjustment at the end of the year, is $14,800. Journalize the adjusting entry required under each of the following alternatives for determining the amount of the adjustment: the amount of insurance expired during the year is $11,200; (b) the amount of unexpired insurance applicable to future periods is $3,600. Dr. K.Moon

Solution Ex. 3-6: a. Insurance Expense 11,200 Prepaid Insurance 11,200 Insurance expired. b. Insurance Expense 11,200 Insurance expired ($14,800 – $3,600). Dr. K.Moon

Adjusting Entries: Unearned Fees Adjusting entries for unearned fees The balance in the unearned fees account, before adjustment at the end of the year, is $45,000. Journalize the adjusting entry required if the amount of unearned fees at the end of the year is $9,000. Dr. K.Moon

Solution Ex. 3–8 Unearned Fees 36,000 Fees Earned 36,000 Fees earned ($45,000 – $9,000). Dr. K.Moon

Adjusting Entries: Accrued Fees Adjusting entry for accrued fees At the end of the current year, $12,300 of fees have been earned but have not been billed to clients. Journalize the adjusting entry to record the accrued fees. b. If the cash basis rather than the accrual basis had been used, would an adjusting entry have been necessary? Explain. Dr. K.Moon

Solution a. Accounts Receivable 12,300 Fees Earned 12,300 Accrued fees. b. No. If the cash basis of accounting is used, revenues are recognized only when the cash is received. Therefore, earned but unbilled revenues would not be recognized in the accounts, and no adjusting entry would be necessary. Dr. K.Moon

Adjusting Entries: Accrued Salaries Adjusting entries for accrued salaries Torrey Realty Co. pays weekly salaries of $9,375 on Friday for a five-day workweek ending on that day. Journalize the necessary adjusting entry at the end of the accounting period assuming that the period ends on Tuesday and (b) on Thursday. Dr. K.Moon

Solution a. Salary Expense 3,750 Salaries Payable 3,750 Accrued salaries [($9,375/5 days) × 2 days]. b. Salary Expense 7,500 Salaries Payable 7,500 Accrued salaries [($9,375/5 days) × 4 days]. Dr. K.Moon

Adjusting Entries: Depreciation Depreciation of office equipment is $1,000. Adjusting Entry: Depreciation Expense: Office Equip. 1,000 Accumulated Depreciation: Office Equip. 1,000 Dr. K.Moon