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Adjusting entries On May 31, the following data were accumulated to assist the accountant in preparing the adjusting entries for Oceanside Realty: Fees accrued but unbilled at May 31 are $19,750. The supplies account balance on May 31 is $12,300. The supplies on hand at May 31 are $4,150. Wages accrued but not paid at May 31 are $2,700. The unearned rent account balance at May 31 is $9,000, representing the receipt of an advance payment on May 1 of three months’ rent from tenants. Depreciation of office equipment is $3,200. Instructions 1. Journalize the adjusting entries required at May 31. 2. Briefly explain the difference between adjusting entries and entries that would be made to correct errors.

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 3, Problem 1PB
Textbook Problem
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Adjusting entries

On May 31, the following data were accumulated to assist the accountant in preparing the adjusting entries for Oceanside Realty:

  • Fees accrued but unbilled at May 31 are $19,750.
  • The supplies account balance on May 31 is $12,300. The supplies on hand at May 31 are $4,150.
  • Wages accrued but not paid at May 31 are $2,700.
  • The unearned rent account balance at May 31 is $9,000, representing the receipt of an advance payment on May 1 of three months’ rent from tenants.
  • Depreciation of office equipment is $3,200.

Instructions

  1. 1. Journalize the adjusting entries required at May 31.
  2. 2. Briefly explain the difference between adjusting entries and entries that would be made to correct errors.

1.

To determine

Record the adjusting entries for the given transactions on May 31.

Explanation of Solution

Adjusting Entries

Adjusting entries indicates those entries, which are passed in the books of accounts at the end of one accounting period. These entries are passed in the books of accounts as per the revenue recognition principle and the expenses recognition principle to adjust the revenue, and the expenses of a business in the period of their occurrence.

Rule of Debit and Credit:

Debit - Increase in all assets, expenses & dividends, and decrease in all liabilities and stockholders’ equity.

Credit - Increase in all liabilities and stockholders’ equity, and decrease in all assets & expenses.

The following entry shows the adjusting entry for accrued fees unearned on May 31.

DateAccount Titles and ExplanationDebit ($)Credit ($)
May 31Accounts Receivable19,750
        Fees earned19,750
(To record the accounts receivable at the end of the year.)

Table (1)

The impact on the accounting equation for the above referred adjusting entry is as follows:

{Assets+$19,750 } = Liabilibilities + {Stockholders' Equities+$19,750}

  • • Accounts Receivable is an asset, and it is increased by $19,750. So debit Accounts receivable by $19,750.
  • • Fees earned are component of stockholders’ equity and increased it by 19,750. So credit fees earned by $19,750.

The following entry shows the adjusting entry for supplies on May 31.

DateAccount Titles and ExplanationDebit ($)Credit ($)
May 31Supplies Expense (1)8,150
        Supplies 8,150
(To record the supplies expense at the end of the accounting period)

Table (2)

The impact on the accounting equation for the above referred adjusting entry is as follows:

{Assets-$8,150}=Liabilities+{Stockholders'Equity-$8,150}

  • • Supplies expense is a component of stockholders’ equity, and it decreased the stockholders’ equity by $8,150. So debit supplies expense by $8,150.
  • • Supplies are an asset for the business, and it is decreased by $8,150. So credit supplies by $8,150.

Working Note:

Calculation of fees earned for the accounting period

(Suppliesexpensefortheyear)=(Amountofsuppliesbeforeadjustment)-(Amountofsuppliesonhand)=$12,300-$4,150=$8,150 (1)

The following entry shows the adjusting entry for wages expense on May 31.

DateAccount Titles and ExplanationDebit ($)Credit ($)
May 31Wages expenses2,700
        Wages Payable 2,700
(To record the wages accrued but not paid at the end of the accounting period

2.

To determine

Explain the difference between the adjusting entries and correcting entries

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Chapter 3 Solutions

Financial And Managerial Accounting
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