Chapter 4, Problem 4.8BE

To determine

Adjusting entries:

An adjusting entry is prepared when the trial balance is not up-to-date, and complete, and they are usually prepared at the end of the accounting period. This adjusting entry is essential for preparing the financial statements of the business.

Accrual adjusting entries:

The accrual adjusting entry consist of two types of adjusting entries, they are as follows:

• Accrued expenses.
• Accrued revenues.

Accrued expenses:

Accrued expenses are the expenses that have been incurred but have not been paid yet. These accrued expenses create accrued liabilities. For the portion of payment made, accrued liabilities would be reduced by way of passing an adjusting entry. Thus, adjusting entries of accrued expenses, will increase the liability account (a credit), and increase the expense account (a debit).

Accrued revenues:

Accrued revenues are the revenues that have been earned, but the cash has not yet been collected for the earned revenue. These accrued revenues create assets. For the portion of collection of cash, created assets would be reduced by way of passing an adjusting entry.

Thus, adjusting entries of accrued revenue, will increase the asset account (a debit), and increase the revenue account (a credit).

To prepare: The accrual adjusting entries for B company at December, 31.