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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

JOURNALIZE ADJUSTING ENTRIES FOR A MERCHANDISING BUSINESS The following partial spreadsheet is taken from the books of the Venice Vegetable Market, for the year ended December 31, 20--. Journalize the adjustments in a general journal.

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To determine

Journalize the adjusting entries for merchandising business.

Explanation

Adjustment entries:

Adjusting entries are those entries which are made at the end of the year to update all the balances in the financial statements to show the true financial information and to maintain the records according to accrual basis principle.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

  • Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
  • Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Prepare adjustment entries:

DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

December 31Income Summary35,000 
Merchandise Inventory35,000
( To record adjustment for merchandise inventory) 

Table (1)

  • Income summary is a component of stockholders’ equity and it is decreased. Therefore, debit income summary account by $35,000.
  • Merchandise inventory is a current asset and it is decreased. Therefore, credit merchandise inventory account by $35,000.
DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

December 31Merchandise Inventory30,000 
Income Summary 30,000
( To record adjustment for merchandise inventory) 

Table (2)

  • Merchandise inventory is a current asset and it is increased. Therefore, debit merchandise inventory account by $30,000.
  • Income summary is a component of stockholders’ equity and it is increased. Therefore, credit income summary account by $30,000.
DateAccount Titles and Explanation

Debit

(Amount in $)

Credit

(Amount in $)

December 31Unearned Grooming Revenue5,500 
Grooming Revenue 5,500
( To record adjustment for unearned grooming revenue) 

Table (3)

  • Unearned grooming revenue is a component of stockholders’ equity and it is decreased...

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