The unadjusted trial balance as of December 31, 2021, for the Bagley Consulting Company appears below. December 31 is the company’s reporting year-end.
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.
The unadjusted
| Account Title | Debits | Credits | ||
| Cash | 12,500 | |||
| Accounts receivable | 9,750 | |||
| Prepaid insurance | 3,900 | |||
| Land | 250,000 | |||
| Buildings | 77,500 | |||
| 31,000 | ||||
| Office equipment | 114,000 | |||
| Accumulated depreciation—office equipment | 45,600 | |||
| Accounts payable | 31,300 | |||
| Salaries payable | 0 | |||
| Deferred rent revenue | 0 | |||
| Common stock | 290,000 | |||
| 50,100 | ||||
| Service revenue | 92,500 | |||
| Interest revenue | 5,600 | |||
| Rent revenue | 7,200 | |||
| Salaries expense | 40,000 | |||
| Depreciation expense | 0 | |||
| Insurance expense | 0 | |||
| Utilities expense | 24,700 | |||
| Maintenance expense | 20,950 | |||
| Totals | 553,300 | 553,300 | ||
Information necessary to prepare the year-end
- The buildings have an estimated useful life of 50 years with no salvage value. The company uses the
straight-line depreciation method. - The office equipment is
depreciated at 10 percent of original cost per year. - Prepaid insurance expired during the year, $1,950.
- Accrued salaries at year-end, $1,650.
- Deferred rent revenue at year-end should be $1,150.
Required:
1. From the trial balance and information given, prepare adjusting entries.
2. Post the beginning balances and adjusting entries into the appropriate T-accounts.
3. Prepare an adjusted trial balance.
4. Prepare closing entries.
5. Prepare a post-closing trial balance.
Prepare an adjusted trial balance.
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