Concept explainers
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 balance sheet account (asset or liability).
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 owner’s equities.
- Credit, all increase in liabilities, revenues, and owners’ equities, all decrease in assets, expenses.
To prepare: The adjusting entries in the books of Company S at the end of the year.
Explanation of Solution
An adjusting entry for Supplies expenses:
In this case, Company S recognized the supplies expenses at the end of the year. So, the necessary adjusting entry that the Company S should record to recognize the supplies expense is as follows:
Date | Description | Post Ref. |
Debit ($) | Credit ($) | |
2016 | Supplies expenses (1) | 4,025 | |||
March | 31 | Supplies | 4,025 | ||
(To record the supplies expenses incurred at the end of the year) |
Table (1)
Working note:
Calculate the value of supplies expense
Explanation:
- Supplies expense decreased the value of owner’s equity by $4,025; hence debit the supplies expenses for $4,025.
- Supplies are an asset, and it decreased the value of asset by $4,025, hence credit the supplies for $4,025.
An adjusting entry for insurance expenses:
In this case, Company S recognized the insurance expenses at the end of the year. So, the necessary adjusting entry that the Company S should record to recognize the prepaid expense is as follows:
Date | Description | Post Ref. |
Debit ($) | Credit ($) | |
2016 | Insurance expenses (2) | 7,850 | |||
March | 31 | Prepaid insurance | 7,850 | ||
(To record the insurance expenses incurred at the end of the year) |
Table (2)
Working note:
Calculate the value of insurance expense
Explanation:
- Insurance expense decreased the value of owner’s equity by $7,850; hence debit the insurance expenses for $7,850.
- Prepaid insurance is an asset, and it decreased the value of asset by $7,850, hence credit the prepaid insurance for $7,850.
An adjusting entry for
In this case, Company S recognized the depreciation expenses on buildings at the end of the year. So, the necessary adjusting entry that the Company S should record to recognize the accrued expense is as follows:
Date | Description | Post Ref. |
Debit ($) | Credit ($) | |
2016 | Depreciation expenses –Buildings (3) | 9,500 | |||
March | 31 | |
9,500 | ||
(To record the depreciation expenses incurred at the end of the year) |
Table (3)
Working note:
Calculate the value of depreciation expense-Equipment
Explanation:
- Depreciation expense decreased the value of owner’s equity by $9,500; hence debit the depreciation expenses for $9,500.
- Accumulated depreciation is a contra-asset account, and it decreased the value of asset by $9,500, hence credit the accumulated depreciation for $9,500.
An adjusting entry for depreciation expenses-Trucks:
In this case, Company S recognized the depreciation expenses on trucks at the end of the year. So, the necessary adjusting entry that the Company S should record to recognize the accrued expense is as follows:
Date | Description | Post Ref. |
Debit ($) | Credit ($) | |
2016 | Depreciation expenses –Trucks (4) | 5,000 | |||
March | 31 | Accumulated depreciation-Trucks | 5,000 | ||
(To record the depreciation expenses incurred at the end of the year) |
Table (4)
Working note:
Calculate the value of depreciation expense-Trucks
Explanation:
- Depreciation expense decreased the value of owner’s equity by $5,000; hence debit the depreciation expenses for $5,000.
- Accumulated depreciation is a contra-asset account, and it decreased the value of asset by $5,000, hence credit the accumulated depreciation for $5,000.
An adjusting entry for utilities expenses:
In this case, Company S recognized the utilities expenses at the end of the year. So, the necessary adjusting entry that the Company S should record to recognize the accrued expense is as follows:
Date | Description | Post Ref. |
Debit ($) | Credit ($) | |
2016 | Utilities expenses (5) | 1,830 | |||
March | 31 | Accounts payable | 1,830 | ||
(To record the utilities expenses incurred at the end of the year) |
Table (5)
Working note:
Calculate the value of utilities expense
Explanation:
- Utilities expense decreased the value of owner’s equity by $1,830; hence debit the utilities expenses for $1,830.
- Accounts payable is a liability, and it increased the value of liability by $1,830, hence credit the accounts payable for $1,830.
An adjusting entry for salaries expenses:
In this case, Company S recognized the salaries expenses at the end of the year. So, the necessary adjusting entry that the Company S should record to recognize the accrued expense is as follows:
Date | Description | Post Ref. |
Debit ($) | Credit ($) | |
2016 | Salaries expenses (6) | 1,400 | |||
March | 31 | Salaries payable | 1,400 | ||
(To record the salaries expenses incurred at the end of the year) |
Table (6)
Working note:
Calculate the value of salaries expense
Explanation:
- Salaries expense decreased the value of owner’s equity by $1,400; hence debit the salaries expenses for $1,400.
- Salaries payable is a liability, and it increased the value of liability by $1,400, hence credit the salaries payable for $1,400.
An adjusting entry for unearned service fees:
In this case, Company S received cash in advance before the service provided to customer. So, the necessary adjusting entry that the Company S should record for the unearned fees revenue at the end of the year is as follows:
Date | Description | Post Ref. |
Debit ($) | Credit ($) | |
2016 | Unearned service fees | 6,650 | |||
March | 31 | Service fees earned (7) | 6,650 | ||
(To record the unearned service fees at the end of the year) |
Table (7)
Working note:
Calculate the value of service fees earned
Explanation:
- Unearned service fees are a liability, and it decreased the value of liability by $6,650, hence debit the unearned service fees for $6,650.
- Service fees earned increased owner’s equity by $6,650; hence credit the service fees earned for $6,650.
Hence, the adjusting entries of Company S are recorded.
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Chapter 3 Solutions
Financial & Managerial Accounting
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