BUA 111 Chp 3 Adjusting Entries Chapter 3

BUA 111: Chp. 3: Adjusting Entries Chapter 3 problems Dr. K. Moon 1

Introd. To Adjusting Entries • Adjusting Entries are only needed before you prepare financial statements, usually at end of month • They bring the account balances (T-Accounts) up-todate so financial statements are correct • Remember, t-accounts only need to have “correct”, up-to-date” balances when financial statements are prepared • Very few accounts will need adjustment. Examples follow. Dr. K. Moon 2

Adjusting Entries: Supplies Adjusting entry for supplies The balance in the supplies account, before adjustment at the end of the year, is $3, 915. Journalize the adjusting entry required if the amount of supplies on hand at the end of the year is $1, 750. Dr. K. Moon 3

Solution Ex. 3– 3 Supplies Expense 2, 165 Supplies used ($3, 915 – $1, 750). Dr. K. Moon 4

Adjusting Entries: Prepaid Insurance Adjusting entry for prepaid insurance The balance in the prepaid insurance account, before adjustment at the end of the year, is $14, 800. Journalize the adjusting entry required under each of the following alternatives for determining the amount of the adjustment: (a) the amount of insurance expired during the year is $11, 200; (b) the amount of unexpired insurance applicable to future periods is $3, 600. Dr. K. Moon 5

Solution Ex. 3 -6: a. Insurance Expense 11, 200 Prepaid Insurance 11, 200 Insurance expired. b. Insurance Expense 11, 200 Prepaid Insurance 11, 200 Insurance expired ($14, 800 – $3, 600). Dr. K. Moon 6

Adjusting Entries: Unearned Fees Adjusting entries for unearned fees The balance in the unearned fees account, before adjustment at the end of the year, is $45, 000. Journalize the adjusting entry required if the amount of unearned fees at the end of the year is $9, 000. Dr. K. Moon 7

Solution Ex. 3– 8 Unearned Fees 36, 000 Fees Earned 36, 000 Fees earned ($45, 000 – $9, 000). Dr. K. Moon 8

Adjusting Entries: Accrued Fees Adjusting entry for accrued fees At the end of the current year, $12, 300 of fees have been earned but have not been billed to clients. a. Journalize the adjusting entry to record the accrued fees. b. b. If the cash basis rather than the accrual basis had been used, would an adjusting entry have been necessary? Explain. Dr. K. Moon 9

Solution a. Accounts Receivable Fees Earned 12, 300 Accrued fees. b. No. If the cash basis of accounting is used, revenues are recognized only when the cash is received. Therefore, earned but unbilled revenues would not be recognized in the accounts, and no adjusting entry would be necessary. Dr. K. Moon 10

Adjusting Entries: Accrued Salaries Adjusting entries for accrued salaries Torrey Realty Co. pays weekly salaries of $9, 375 on Friday for a five-day workweek ending on that day. Journalize the necessary adjusting entry at the end of the accounting period assuming that the period ends (a) on Tuesday and (b) on Thursday. Dr. K. Moon 11

Solution a. Salary Expense 3, 750 Salaries Payable days]. 3, 750 Accrued salaries [($9, 375/5 days) × 2 b. Salary Expense 7, 500 Salaries Payable days]. Dr. K. Moon 7, 500 Accrued salaries [($9, 375/5 days) × 4 12

Adjusting Entries: Depreciation • Depreciation of office equipment is $1, 000. Adjusting Entry: Depreciation Expense: Office Equip. 1, 000 Accumulated Depreciation: Office Equip. 1, 000 Dr. K. Moon 13

Sample Problem w/solution Adjusting entries On October 31, 2016, the following data were accumulated to assist the accountant in preparing the adjusting On October 31, 2016, entries for Dependable Realty: a. The supplies account balance on October 31 is $3, 975. The supplies on hand on October 31 are $1, 050. b. The unearned rent account balance on October 31 is $11, 000, representing the receipt of an advance payment on October 1 of four months’ rent from tenants. c. Wages accrued but not paid at October 31 are $2, 500. d. Fees accrued but unbilled at October 31 are $4, 900. e. Depreciation of office equipment is $1, 100. Instructions 1. Dr. K. Moon Journalize the adjusting entries required at October 31, 2016. Journalize the adjusting entries required at October 31, 2016. 14

Solution: Sample Problem (con’t. ) 1. a. Supplies Expense 2, 925 Supplies used ($3, 975 – $1, 050). b. Unearned Rent 2, 750 Rent Revenue Rent earned ($11, 000/4). Dr. K. Moon 15 2, 750

Solution: Sample Problem (con’t. ) c. Wages Expense 2, 500 Wages Payable 2, 500 d. Accounts Receivable 4, 900 Fees Earned 4, 900 e. Depreciation Expense 1, 100 Accum. Deprec. —Office Equipment Dr. K. Moon 16 1, 100