Chapter 3, Problem 1BE

To determine

Adjustment entries: Adjusting entries are those entries which are made at the end of the year to update the all balances in the financial statements to show the true financial information and to maintain the records according to accrual basis principle.

Accrual basis principle: According to this principle of accounting, revenue should be recognized at the time when it is earned, doesn’t matter, it is received or not and expense should be recognized when it is incurred, doesn’t matter it is paid or not.

To determine: Adjustment entries for following accounts:

1. (a) Prepaid Insurance
2. (b) Depreciation expense
3. (c) Unearned service revenue
4. (d) Interest payable