1.
Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle. All adjusting entries affect at least one income statement account (revenue or expense), and one
Rules of Debit and Credit:
Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and
stockholders’ equities . - Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.
Accrual basis of accounting:
Accrual basis of accounting refers to recognizing the financial transactions during the period in which the event occurs, even if the cash is not exchanged.
Income statement:
This is the financial statement of a company which shows all the revenues earned and expenses incurred by the company over a period of time.
Balance sheet:
This is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.
To prepare: The adjusting entries in the books of Company AC at the end of the year.
2.
The effects on the income statement, if adjusting entries are not recorded.
3.
The effects on the balance sheet, if adjusting entries are not recorded.
4.
The effects on the “net increase or decrease in cash” on the statement of cash flow, if adjusting entries are not recorded.
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- Assume the following data for Lusk Inc. before its year-end adjustments: Journalize the adjusting entries for the following: a. Estimated customer allowances b. Estimated customer returnsarrow_forwardPrepare adjusting journal entries, as needed, considering the account balances excerpted from the unadjusted trial balance and the adjustment data. A. depreciation on buildings and equipment, $17,500 B. advertising still prepaid at year end, $2,200 C. interest due on notes payable, $4,300 D. unearned rental revenue, $6,900 E. interest receivable on notes receivable, $1,200arrow_forwardPrepare adjusting journal entries, as needed, considering the account balances excerpted from the unadjusted trial balance and the adjustment data. A. depreciation on fixed assets, $ 8,500 B. unexpired prepaid rent, $12,500 C. remaining balance of unearned revenue, $555arrow_forward
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