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Adjusting entries The Signage Company specializes in the maintenance and repair of signs, such as billboards. On March 31, 20Y6, the accountant for The Signage Company prepared the trial balances shown at the top of the following page. Instructions Journalize the seven entries that adjusted the accounts at March 31. None of the accounts were affected by more than one adjusting entry.

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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 4PB
Textbook Problem
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Adjusting entries

The Signage Company specializes in the maintenance and repair of signs, such as billboards. On March 31, 20Y6, the accountant for The Signage Company prepared the trial balances shown at the top of the following page.

Instructions

Journalize the seven entries that adjusted the accounts at March 31. None of the accounts were affected by more than one adjusting entry.

Chapter 3, Problem 4PB, Adjusting entries The Signage Company specializes in the maintenance and repair of signs, such as

To determine

Prepare the adjusting entries in the books of Company S at the end of the year.

Explanation of Solution

Adjusting entries:

Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle.  All adjusting entries affect at least one income statement account (revenue or expense), and one balance sheet account (asset or liability).

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.

An adjusting entry for Supplies expenses:

DateAccount title and explanation

Post

Ref.

Debit ($)Credit ($)
20Y6Supplies expenses  ($6,200$2,175) 4,025 
March31        Supplies  4,025
 (To record the supplies expenses incurred at the end of the year)   

Table (1)

  • Supplies expense decreased the value of stockholders’ equity by $4,025; hence debit the supplies expenses for $4,025.
  • Supplies are an asset, and it decreased the value of asset by $4,025, hence credit the supplies for $4,025.  

An adjusting entry for insurance expenses:

DateAccount title and explanation

Post

Ref.

Debit ($)Credit ($)
20Y6Insurance expenses ($9,000$1,150) 7,850 
March31        Prepaid insurance  7,850
 (To record the insurance expenses incurred at the end of the year)   

Table (2)

  • Insurance expense decreased the value of stockholders’ equity by $7,850; hence debit the insurance expenses for $7,850.
  • Prepaid insurance is an asset, and it decreased the value of asset by $7,850, hence credit the prepaid insurance for $7,850.  

An adjusting entry for depreciation expenses-Buildings:

DateAccount title and explanation

Post

Ref.

Debit ($)Credit ($)
20Y6Depreciation expenses –Buildings ($61,000$51,500) 9,500 
March31        Accumulated depreciation-Buildings  9,500
 (To record the depreciation expenses incurred at the end of the year)   

Table (3)

  • Depreciation expense decreased the value of stockholders’ equity by $9,500; hence debit the depreciation expenses for $9,500.
  • Accumulated depreciation is a contra-asset account, and it decreased the value of asset by $9,500, hence credit the accumulated depreciation for $9,500.  

An adjusting entry for depreciation expenses-Trucks:

DateAccount title and explanation

Post

Ref

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Chapter 3 Solutions

Financial And Managerial Accounting
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