Adjusting Entries - Examples - 1550 Words

Adjusting Entries – Examples Let’s work with some examples. We are working with a one year accounting period that ends on 12/31/X2. Let’s use a three step process. Step 1 – Analyze the transaction. Step 2 – Record in the journal. Step 3 – Post to the ledger. Example 1: On 12/31/X2 (before the adjusting process), Supplies, an asset, has a balance of $2,500. Employees take a physical account of the supplies on hand. That physical count reveals that $1,200 of supplies remains. Step 1 †Ã¢â‚¬  The balance of Supplies before the adjusting entry is $2,500. Subtract the amount determined during the physical count ($1,200). The result ($1,300) represents the amount of supplies that have been used up – Supplies Expense. Assets – Supplies is†¦show more content†¦Example 4: On 7/25/X2, a law firm and its client sign a contract and the client pays $8,400 cash. The contract states the law firm will provide monthly legal services for 12 months, beginning on 8/1/X2. A regular journal entry is needed on 7/25/X2 – debit Cash and credit Unearned Revenue for $8,400. On 12/31/X2, an adjusting journal entry is needed to record the amount of revenue that has been earned. The entry also results in the correct balance of the liability account as of 12/31/X2. Computation: $8,400 divided by 12 months equals $700 per month. $700 times 5 months (Aug – Dec) equals $3,500. $3,500 has now been earned. This complies with the revenue recognition principle – record revenue when it is earned. The liability is reduced because the services have been provided for 5 months. Liabilities – Unearned Revenue is decreased. Stockholders’ Equity – Legal Fees Earned is increased. The journal entry includes a debit to Unearned Revenue and a credit to Legal Fees Earned for $3,500 When the debit of $3,500 is posted to Unearned Revenue, the ending balance will be correct ($8,400 less $3,500). Legal Fees Earned goes to the Income Statement. Example 5: On 12/31/X2, the accountant questions the managers and discovers that revenue of $12,500 has been earned (the services have been provided) but the clients have not yet been billed. This is an accrual of revenue. Revenue has been earned and must be recordedShow MoreRelatedAcct1501 Exam5198 Words   |  21 Pages6,234,000 CR. Cash Trust 6,234,000 (Allottment of 6,234,000 shares @ $1 per share) c. April 4th 2004 DR. Sponsoring Broker Expense 249,360 CR. Cash 249,360 (Cost of sponsoring broker at 4% per share Allotted 4% of 6,234,000 $249,360) d. No journal entry. 2. Owners’ Equity Share Capital Reserves Retained Profits Total Owners’ Equity Consolidated 28th Feb 2004 $ 2,875,000 (18,557) 2,084,119 4,940,562 Workings 6,234,000 Consolidated 30th Feb 2004 $ 9,109,000 (18,557) 2,084,199 11,174,562 Read MoreAdjusting Accounting Journals On The End Of An Accounting Essay1198 Words   |  5 Pages Adjusting debts making ready economic statements accounting principles and concepts are an arrangement of huge traditions which have been formulated to provide an essential shape to financial reporting. Adjusting entries are made to your accounting journals toward the end of an accounting duration. Adjusting entries are made after an ordeal regulate is readied. The motivation at the back of adjusting entries is to change incomes and fees to the accounting time frame wherein they really happenRead MoreAccounting Essay932 Words   |  4 Pagesand update accounts at the end of the period. Therefore, we learn a new concept which is also referred to as adjusting the books. I am quite convinced that there are numerous people who are familiar with that term, nevertheless, in accounting when we talk about adjusting the book s, we mean special journal entries, called â€Å"adjusting entries†. Before explaining further about adjusting entries I would like to mention that in accounting we distinguish two ways of recording transactions and they are cashRead MoreCh 3 Review1375 Words   |  6 Pagesthis chapter, you should be able to: Understand basic accounting terminology. Explain double-entry rules. Explain how transactions affect the accounting equation. Identify the steps in the accounting cycle and the steps in the recording process. Explain the reasons for and prepare adjusting entries. Explain how the type of ownership structure affects the financial statements. Prepare closing entries and consider other matters relating to the closing process. Prepare a 10-column work sheet andRead MoreWorking with Financial Statements1378 Words   |  6 Pagesimportance of journal adjustments that are prepaid, unearned, and accrued for both revenues and expenses over time. Each item discussed helps provided and maintains a balance for the completion of a financial statement. If entered correctly, the all entries used will provide a clear picture of the account efforts of any business. The Revenue Recognition and Expense Recognition Principle Being able to account for a business’s revenues and expenses in a certain accounting period is difficult to determineRead MoreAccounting And Accrual Basis Of Accounting Essay983 Words   |  4 Pageswork by cutting down the time to make adjusting entries and want to know more accurate view of cash flows, the business owners will likely to choose cash basis. c) What type of business is likely to use a cash basis or modified cash basis and why? Small businesses will likely to use a cash basis or modified cash basis because the accrual basis of accounting is not required by the reporting purpose and cash basis require less accounting knowledge. For example, when I go to QQ bakery or Liang ChineseRead MoreAccounting 504626 Words   |  3 Pagesdouble-entry accounting?   Examples are great and   try to build on what each other has said.   Double entry accounting is based on the fact that every financial transaction has equal and opposite effects in at least two different accounts. In the double entry system, transactions are recorded in terms of debits and credits. Since a debit in one account will be offset by a credit in another account, the sum of all debits must therefore be exactly equal to the sum of all credits. The double-entry systemRead MoreDefine: Generally Accepted Accounting Principles and Accrual Basis1391 Words   |  6 Pagesprofit determined under (a) the cash basis of accounting and (b) the accrual basis of accounting? 3 Why are adjusting entries necessary? Surely they cause too much delay in preparing financial statements, and the financial effect of any entries made is immaterial in the long run.’ Respond to this criticism. 4 Compare and contrast the purposes of adjusting entries and closing entries 4 References: 5 Define the terms assets, liabilities, and equity. Are these terms related in any wayRead MoreACC 300 Final Exam1667 Words   |  7 Pagesequity can be described as claims of 5) The Vintage Laundry Company purchases $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $2,000 on hand. The adjusting entry that should be made by the company on June 30 is: 6) Use the following data to determine the total dollar amount of assets to be classified as current assets. Koonce Office Supplies Balance Sheet December 31, 2010 7) In horizontal analysisRead MoreThe Accounting Cycle1405 Words   |  6 Pageselectronic, and are recorded in the order that they occur. When a journal entry is made, the double-entry rule is used. This means that for every one transaction, at least two accounts are affected. There must be a debit and a credit for each transaction, and the total of debits and credits must equal the amount of the transaction. It is important to note that debits are entered before credits. The third step is to post the journal entries to the T-accounts, also called ledger accounts, which show the changes