Chapter 3

ADJUSTING ACCOUNTING ENTRIES

Chapter Summary

Deferrals Accruals
1- Prepaid Expense: Cash payment before the expense is recorded 1- Accrued Revenue: Revenue Recorded before Cash receipt
Dr. Increase an Expense Account Dr. Increase in Asset Account
Cr. Decrease an Asset Account Cr. Increase in Revenue Account
Ex: I purchased supplies on a specific date for 5000 and the following Ex: Making a service for my clients before taking my money.
month I used some of them and the remaining amount is 3000.

2- Unearned Revenue: Cash receipt before the revenue is recorded 2- Accrued Expense: Expense recorded before Cash payment.
Dr. decrease in Liability Account Dr. Increase in Expense Account
Cr. increase an Revenue Account Cr. Increase in Liability Account
Ex: Taking money for making a service, then performing part of this Ex: Signing Notes payable and paying interest on it every month.
service next month.
 Trial
Analyze Journalize Post
Balance

Journalize Adjusted
Financial Closing Post closing
and post Trial
statements entries trial
AJES Balance
balance
True or False
1. Many business transactions affect more than one time period. (True)
2. A liability—revenue account relationship exists with an unearned rent revenue adjusting entry. (True)
3. Unearned revenue is a prepayment that requires an adjusting entry when services are performed. (True)
4. Asset prepayments become expenses when they expire. (True)
5. A contra asset account is subtracted from a related account in the balance sheet. (True)
6. The cost of a depreciable asset less accumulated depreciation reflects the book value of the asset.(True)

MCQ
1.Monthly and quarterly time periods are called
a. calendar periods.
b. fiscal periods.
c. interim periods.
d. quarterly periods.

2.An adjusting entry

a. affects two balance sheet accounts.
b. affects two income statement accounts.
c. affects a balance sheet account and an income statement account.
d. is always a compound entry.
3. Expenses incurred but not yet paid or recorded are called
a. prepaid expenses.
b. accrued expenses.
c. interim expenses.
d. unearned expenses.

4. Unearned revenues are

a. received and recorded as liabilities before they are earned.
b. earned and recorded as liabilities before they are received.
c. earned but not yet received or recorded.
d. earned and already received and recorded.

5. An asset—expense relationship exists with

a. liability accounts.
b. revenue accounts.
c. prepaid expense adjusting entries.
d. accrued expense adjusting entries.

6. A company usually determines the amount of supplies used during a period by

a. adding the supplies on hand to the balance of the Supplies account.
b. summing the amount of supplies purchased during the period.
c. taking the difference between the supplies purchased and the supplies paid for during the period.
d. taking the difference between the balance of the Supplies account and the cost of supplies on hand.
P3-1A
2,5,7
Solution

Date Title and explanation Ref Debit Credit

May 31 Supplies expense 900
Supplies 900
May 31 Utility expense 250
Utility payable 250
May 31 Insurance expense 150
Prepaid insurance 150
May 31 Unearned service revenue 1600
Service revenue 1600
May 31 Salaries and wages 1104
expense 1104
Salaries payable
May 31 Depreciation expense 190
Accumulated 190
Depreciation
May 31 Account Receivable 1700
Service revenue 1700
 cas Account Receivable Supplies Prepaid Insurance
Dr h Cr Dr Cr Dr Cr Dr Cr
4,500 6,000 1,900 900 3,600 150
1,700

4,500 7,700 1000 3,450

Equipment Accounts Payable Unearned Revenue Owner’s Capital

Dr Cr Dr Cr Dr Cr Dr Cr
11,400 4,500 1600 2,000 18,700

11,400 4,500 400 18,700

Service Revenue Salaries and Wages Rent Expense Supplies Expense

Dr Cr Dr Cr Dr Cr Dr Cr
9,500 6,400 900 1000
1,700 1,104
1,600

12,800 7,504 900 1000

 Utility Expense Utility Payable Insurance Expense Salaries Payable
Dr Cr Dr Cr Dr Cr Dr Cr
250 250 150 1104

250 250 150 1104

Depreciation Accumulated
Dr Cr Depreciation
Dr Cr
190 190

190 190
 Account Title Debit Credit
Cash 4,500
Account Receivable 7,700
Supplies 1000
Prepaid Insurance 3,450
Equipment 11,400
Accumulated Depreciation 190
Accounts Payable 4,500
Unearned Revenue 400
Salaries Payable 1104
Utility Payable 250
Owner’s Capital 18,700
Service Revenue 12,800
Salaries and Wages expense 7504
Rent Expense 900
Supplies Expense 900
Utility Expense 250
Insurance Expense 150
Depreciation Expense 190

37,944 37,944
P3-2A
1,2,3,5
Solution

Date Title and explanation Ref Debit Credit

May 31 Insurance expense 200
Prepaid insurance 200
May 31 Supplies expense 1330
Supplies 1330
Depreciation Expense 250
Acc Depreciation- 250
building 125
May 31
Depreciation Expense 125
Acc Depreciation-
May 31 Mortgage
equip. Expense 400
Mortgage 400
Payable
May 31 Unearned Revenue 2200
Rent Revenue 2200
May 31 Salaries expense 750
Salaries Payable 750
 cas Supplies Prepaid Insurance Land
Dr h Cr Dr Cr Dr Cr Dr Cr
3,500 2,080 1,330 2,400 200 12,000

3,500 750 2,200 12,000

Building Equipment Accounts Payable Unearned Revenue

Dr Cr Dr Cr Dr Cr Dr Cr
60,000 15,000 4,800 2,200 3,300

60,000 15,000 4,800 1,100

Mortgage Payable Owner’s Capital Rent Revenue

Dr Cr Dr Cr Dr Cr
40,000 41,380 10,300
400 2200

40,400 41,380 12,500

Advertising Expense Salaries and Wages Expense Utility Expense Supplies Expense
Dr Cr Dr Cr Dr Cr Dr Cr
600 3300 900 1330
750

600 4050 900 1330

Depreciation Acc Depreciation-building Acc Depreciation-equipment Mortgage Expense

Dr Cr Dr Cr Dr Cr Dr Cr
250 250 125 400
125

375 250 125 400

Salaries Payable Insurance expense
Dr Cr Dr Cr
750 200

750 200
 Account Title Debit Credit
Cash 3,500
Supplies 750
Prepaid Insurance 2,200
Land 12,000
Building 60,000
Equipment 15,000
Accumulated Depreciation- 250
building 125
Accumulated dep-equipment 4800
Accounts Payable 1100
Unearned Revenue 750
Salaries Payable 40,400
Mortgage payable 41,380
Owner’s Capital 12,500
Rent Revenue 600
Advertising expense 375
Dep Expense 1330
Supplies Expense 400
Mortgage Expense 200
Insurance Expense 4050
Salaries and wages expense 900
utility Expense

101,350 101,350
P3-1B
Solution
Date Title and explanation Ref Debit Credit
June 30 Supplies expense 1250
Supplies 1250
June 30 Utility expense 150
Utility Payable 150
June 30 Insurance expense 250
Prepaid Insurance 250
June 30 Unearned Service 2800
Revenue 2800
Service
June 30 Salaries Expense 1900
Revenue
Salaries 1900
Payable
June 30 Depreciation expense 250
Acc. Depreciation equip. 250
June 30 Account Receivable 1200
Service 1200
Revenue
 cas Account Receivable Supplies Prepaid Insurance
Dr h Cr Dr Cr Dr Cr Dr Cr
7,150 6,000 2,000 1,250 3,000 250
1200

7,150 7,200 750 2,750

Equipment Accounts Payable Unearned service Revenue Owner’s Capital

Dr Cr Dr Cr Dr Cr Dr Cr
15,000 4,500 2,800 4,000 21,750
150

15,000 4,650 1,200 21,750

Service Revenue Salaries and Wages Rent Expense Supplies Expense

Dr Cr Dr Cr Dr Cr Dr Cr
7,900 4,000 1000 1250
2,800 1,900
1,200

11,900 5,900 1000 1250

 Utility Expense Insurance Expense Salaries Payable Depreciation
Dr Cr Dr Cr Dr Cr Dr Cr
150 250 1900 250

150 250 1900 250

Acc Depreciation equipment

Dr Cr
250

250
 Account Title Debit Credit
Cash 7,150
Account Receivable 7,200
Supplies 750
Prepaid Insurance 2,750
Equipment 15,000
Accumulated Depreciation – equip. 250
Accounts Payable 4,650
Unearned Service Revenue 1,200
Salaries Payable 1900
Owner’s Capital 21,750
Service Revenue 11,900
Depreciation Expense 250
Supplies expense 1,250
Rent expense 1,000
Insurance expense 250
Salaries and wages expense 5,900
Utility expense 150

41,650 41,650
P3-2B
Solution
Date Title and explanation Ref Debit Credit
August 31 Insurance expense 900
Prepaid insurance 900
August 31 Supplies expense 2500
Supplies 2500
August 31 Depreciation expense 2,100
Accumulated Dep.-Building 1500
Accumulated Dep.- 600
Equipment
August 31 Unearned Rent Revenue 4800
Rent Revenue 4800
August 31 Salaries Expense 400
Salaries Payable 400
August 31 Account Receivable 4000
Rent Revenue 4000
August 31 Interest Expense 600
Interest Payable 600
 cas Account Receivable Supplies Prepaid Insurance
Dr h Cr Dr Cr Dr Cr Dr Cr
19,600 4,000 3,300 2,500 6,000 900

19,600 4,000 800 5,100

Land Building Equipment Accounts Payable

Dr Cr Dr Cr Dr Cr Dr Cr
25,000 125,000 26,000 6,500

25,000 125,000 26,000 6,500

Unearned Rent Revenue Mortgage Payable Owner’s Capital Owner’s Drawings

Dr Cr Dr Cr Dr Cr Dr Cr
4,800 7,400 80,000 100,000 5,000

2,600 80,000 100,000 5,000

 Rent Revenue Main. And repair Expense Salaries and Wages Utility Expense
Dr Cr Dr Cr Dr Cr Dr Cr
80,000 3600 51,000 9400
4,800 400
4000

88,800 3600 51,400 9400

Insurance Expense Supplies Expense Depreciation Acc Depreciation building

Dr Cr Dr Cr Dr Cr Dr Cr
900 2500 2100 1500

900 2500 2100 1500

Acc Depreciation equipment Salaries Payable Interest Expense Interest Payable

Dr Cr Dr Cr Dr Cr
Dr Cr 600
600 400 600

600 400 600 600

 Account Title Debit Credit
Cash 19,600
Account Receivable 4,000
Supplies 800
Prepaid Insurance 5,100
Land 25,000
Building 125,000
Accumulated Dep - Building 1,500
Equipment 26,000
Accumulated Depreciation – equip. 600
Accounts Payable 6,500
Unearned Rent Revenue 2,600
Salaries Payable 400
Interest Payable 600
Mortgage payable 80,000
Owner’s Capital 100,000
Owner’s Drawings 5000
Rent Revenue 88,800
Depreciation Expense 2,100
Maint. and repair expense 3,600
Supplies expense 2500
Interest expense 600
Insurance expense 900
Salaries and wages expense 51,400
Utility expense 9,400

281,000 281,000