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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Adjusting entries

On May 31, 2016, the following data were accumulated to assist the accountant in preparing the adjusting entries for Oceanside Realty:

  1. a. Fees accrued but unbilled at May 31 are $19,750.
  2. b. The supplies account balance on May 31 is $12,300. The supplies on hand at May 31 are $4,150.
  3. c. Wages accrued but not paid at May 31 are $2,700.
  4. d. 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.
  5. e. Depreciation of office equipment is $3,200.

Instructions

  1. 1. Journalize the adjusting entries required at May 31, 2016.
  2. 2. Briefly explain the difference between adjusting entries and entries that would be made to correct errors.

1.

To determine

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.

To record: The adjusting entries for the given transactions on May 31, 2016.

Explanation

a. The following entry shows the adjusting entry for accrued fees unearned on May 31, 2016.

Date Account Titles and Explanation Debit ($) Credit ($)
May 31, 2016 Accounts Receivable 19,750
       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(A)+$19,750}={Liabilities(L)+Equities(E)+$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.

b. The following entry shows the adjusting entry for supplies on May 31, 2016.

Date Account Titles and Explanation Debit ($) Credit ($)
May 31, 2016 Supplies Expense (1) 8,150
       Supplies8,150
(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(A)$8,150}={Liabilities(L)+Equities(E)$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:

Calculate the value of supplies expenses for the accounting period

(Suppliesexpensefor the year)=(Amountof suppliesbefore adjustment)(Amount of supplieson hand)=$12,300$4,150=$8,150 (1)

c. The following entry shows the adjusting entry for wages expense on May 31, 2016.

Date Account Titles and Explanation Debit ($) Credit ($)
May 31, 2016 Wages expenses 2,700
       Wages Payable2,700
(To record the wages accrued but not paid at the end of the accounting period.)

Table (3)

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

{Assets(A)}={Liabilities(L)+Equities(E)+$2,700$2,700}

  • Wages expense is a component of Stockholders ‘equity, and it decreased it by $2,700

2.

To determine

To explain: The difference between the adjusting entries and correcting entries

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