BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

Solutions

Chapter
Section
BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

You are the bookkeeper for a small but thriving business. You have asked the owner for the information you need to make adjusting entries for depreciation, supplies, insurance, and wages. He says that he’s really busy and that what you’ve done so far is “close enough.” Explain the need for adjusting entries and their effect on the owner’s balance sheet and the “bottom line” on the income statement.

To determine

Describe the importance of adjusting entries and explain the effect of adjusting entries for depreciation, supplies, insurance, and wages on income statement and balance sheet.

Explanation

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and owners’ or stockholders’ equity) to maintain the records according to accrual basis principle and matching concept.

Importance of adjusting entries: Adjusting entries are recorded as per accrual basis principle and matching concept. These two accounting principles enable to up-date the adjustments, and ensure reporting the accurate financial statements. If the adjusting entries are not journalized and posted, the balance sheet accounts and income statement accounts would be understated or overstated.

Depreciation expense:

  • Effect of adjusting depreciation expense on balance sheet: The adjusting entry for depreciation expense is recorded by debiting Depreciation Expense and crediting Accumulated Depreciation. If the Accumulated Depreciation is not credited, the asset value would be overstated.
  • Effect of adjusting depreciation expense on bottom line of income statement: The adjusting entry for depreciation expense is recorded by debiting Depreciation Expense and crediting Accumulated Depreciation. If the Depreciation Expense is not recorded, the expense value would be understated, consequently the net income would be overstated, or net loss would be understated.

Supplies expense:

  • Effect of adjusting supplies expense on balance sheet: The adjusting entry for supplies expense is recorded by debiting Supplies Expense and crediting Supplies. If the Supplies is not credited, the asset value would be overstated...

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

CURRENT RATIO The Petry Company has 1312,500 in current assets and 525,000 in current liabilities. Its initial ...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

What steps are followed in posting cash receipts from the general journal to the general ledger?

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)