Buzzard Bicycle specializes in custom painting and design of bicycles. December 31 is the company’s fiscal year-end. Information necessary to prepare the year-end adjusting entries appears below. 1. A three-year fire insurance policy was purchased on July 1, 2021, for $18,000. The company debited Prepaid Insurance for the entire amount. 2. Employee salaries of $25,000 for the month of December will be paid in early January. 3. On November 1, 2021, the company received $6,000 in cash from a customer requesting a custom design for six identical bikes ($1,000 each). Deferred Revenue was credited for the entire amount. By the end of the year, four of the bikes have been completed. 4. Supplies at the beginning of the year totaled $2,000. During 2021, additional supplies of $18,000 were purchased, and the entire amount was debited to Supplies. Supplies remaining at the end of the year total $4,000. 5. Buzzard paid a local radio station $12,000 for four months of advertising on December 1, 2021. The advertising will appear evenly over the four-month period. The company debited Prepaid Advertising for the entire amount. 6. Buzzard borrowed $36,000 on March 1, 2021. The principal is due to be collected in five years. Interest is receivable each March 1 at an annual rate of 10%. Required: Record the necessary adjusting entries on December 31, 2021.
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
Buzzard Bicycle specializes in custom painting and design of bicycles. December 31 is the company’s fiscal year-end. Information necessary to prepare the year-end
1. A three-year fire insurance policy was purchased on July 1, 2021, for $18,000. The company debited Prepaid Insurance for the entire amount.
2. Employee salaries of $25,000 for the month of December will be paid in early January.
3. On November 1, 2021, the company received $6,000 in cash from a customer requesting a custom design for six identical bikes ($1,000 each). Deferred Revenue was credited for the entire amount. By the end of the year, four of the bikes have been completed.
4. Supplies at the beginning of the year totaled $2,000. During 2021, additional supplies of $18,000 were purchased, and the entire amount was debited to Supplies. Supplies remaining at the end of the year total $4,000.
5. Buzzard paid a local radio station $12,000 for four months of advertising on December 1, 2021. The advertising will appear evenly over the four-month period. The company debited Prepaid Advertising for the entire amount.
6. Buzzard borrowed $36,000 on March 1, 2021. The principal is due to be collected in five years. Interest is receivable each March 1 at an annual rate of 10%.
Required:
Record the necessary adjusting entries on December 31, 2021.
A journal entry is the recording of financial transactions in books of the business entity. It should be in the chronological order.
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