# Adjusting entries and errors At the end of August, the first month of operations, the following selected data were taken from the financial statements of Tucker Jacobs, an attorney: In preparing the financial statements, adjustments for the following data were overlooked: Unbilled fees earned at August 31, \$31,900. Depreciation of equipment for August, \$7,500. Accrued wages at August 31, \$5,200. Supplies used during August, \$3,000. Instructions 1. Journalize the entries to record the omitted adjustments. 2. Determine the correct amount of net income for August and the total assets, liabilities, and stockholders’ equity at August 31. In addition to indicating the corrected amounts, indicate the effect of each omitted adjustment by setting up and completing a columnar table similar to the following. The first adjustment is presented as an example.

### Financial And Managerial Accounting

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

Chapter
Section

### Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 3, Problem 6PB
Textbook Problem
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## Adjusting entries and errorsAt the end of August, the first month of operations, the following selected data were taken from the financial statements of Tucker Jacobs, an attorney:In preparing the financial statements, adjustments for the following data were overlooked: Unbilled fees earned at August 31, \$31,900. Depreciation of equipment for August, \$7,500. Accrued wages at August 31, \$5,200. Supplies used during August, \$3,000. Instructions 1. Journalize the entries to record the omitted adjustments. 2. Determine the correct amount of net income for August and the total assets, liabilities, and stockholders’ equity at August 31. In addition to indicating the corrected amounts, indicate the effect of each omitted adjustment by setting up and completing a columnar table similar to the following. The first adjustment is presented as an example.

(1)

To determine

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

### Explanation of Solution

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 fees earned:

In this case, Company TJ recognized the fees revenue at the end of the year. So, the necessary adjusting entry that the Company TJ should record to recognize the accrued fees is as follows:

 Date Description Post Ref. Debit (\$) Credit (\$) August 31 Accounts receivable 31,900 Fees earned 31,900 (To record the fees earned at the end of the year)

Table (1)

• • Account receivable is an asset, and it increased the value of asset by \$31,900, hence debit the accounts receivable for \$31,900.
• • Fees earned increased the value of stockholders’ equity by \$31,900; hence credit the fees earned for \$31,900.

An adjusting entry for depreciation expenses-Equipment:

In this case, Company TJ recognized the depreciation expenses on equipment at the end of the year. So, the necessary adjusting entry that the Company TJ should record to recognize the accrued expense is as follows:

 Date Description Post Ref. Debit (\$) Credit (\$) August 31 Depreciation expenses –Equipment 7,500 Accumulated depreciation-Equipment 7,500 (To record the depreciation expenses incurred at the end of the year)

Table (2)

• • Depreciation expense decreased the value of stockholders’ equity by \$7,500; hence debit the depreciation expenses for \$7,500...

(2)

To determine

Determine the correct amount of net income for August 31, and the total assets, liabilities and stockholders’ equity of Company TJ.

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