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This article explains the nature of the adjusting process in accounting and the types of accounts requiring adjustment. It also provides examples of journal entries for adjusting accounts and demonstrates how to prepare an adjusted trial balance.
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3 The Adjusting Process Student Version
1 Describe the nature of the adjusting process. 3-2
1 Types of Accounts Requiring Adjustment Prepaid expenses are the advance payment of future expenses and are recorded as assets when cash is paid.
1 Types of Accounts Requiring Adjustment Unearned revenues are the advance receipt of future revenues and are recorded as liabilities when cash is received.
1 Types of Accounts Requiring Adjustment Accrued revenues are unrecorded revenues that have been earned and for which cash has yet to be received.
1 Types of Accounts Requiring Adjustment Accrued expenses are unrecorded expenses that have been incurred and for which cash has not been paid.
2 Journalize entries for accounts requiring adjustment. 3-7
2 Prepaid Expenses NetSolutions’ Supplies account has a balance of $2,000 in the unadjusted trial balance. Some of these supplies have been used. On December 31, a count reveals that $760 of supplies are on hand. Supplies (balance on trial balance) $2,000 Supplies on hand, December 31 – 760 Supplies used $1,240
760 2,040 2 Supplies Expense Supplies 14 55 Bal. 2,000 Bal. 800 Dec. 31 1,240 Dec. 31 1,240
2 Prepaid Expenses The debit balance of $2,400 in NetSolutions’ Prepaid Insurance account represents the December 1 prepayment of insurance for 12 months.
2,200 2 Prepaid Insurance Insurance Expense 15 56 Dec. 31 200 Bal. 2,400 Dec. 31 200
2 Unearned Revenues The December 31 unadjusted trial balance of NetSolutions indicates a balance in the unearned rent account of $360.
2 Unearned Rent Rent Revenue 23 42 Dec. 31 120 Bal. 360
Unearned Rent 23 240 Dec. 31 120 Bal. 360 Bal. 2 Rent Revenue 42 Dec. 31 120
2 Accrued Revenues NetSolutions signed an agreement with Danker Co. on December 15 to provide services at $20 per hour. As of December 31, NetSolutions had provided 25 hours of assistance.
Bal. 2,720 2 Fees Earned Accounts Receivable 12 41 Bal. 2,220 Bal. 16,340 Dec. 31 500
Bal. Bal. 2,720 16,840 2 Fees Earned Accounts Receivable 12 41 Bal. 2,220 Bal. 16,340 Dec. 31 500 Dec. 31 500
2 Accrued Expenses NetSolutions pays it employees biweekly. During December, NetSolutions paid wages of $950 on December 13 and $1,200 on December 27. As of December 31, NetSolutions owes $250 of wages to employees for Monday and Tuesday.
Bal. 4,525 2 22 Wages Payable Wages Expense 51 Bal. 4,275 Dec. 31 250
Bal. 4,525 2 22 Wages Payable Wages Expense 51 Dec. 31 250 Bal. 4,275 Dec. 31 250
2 The journal entry for the payment of wages on January 10 is shown below. After posting
2 NetSolutions estimates the depreciation on its office equipment to be $50 for the month of December.
2 Depreciation Expense Accum. Depr.—Office Equip. 19 53 Dec. 31 50
2 Depreciation Expense Accum. Depr.—Office Equip. 19 53 Dec. 31 50 Dec. 31 50
2 NetSolutions’ balance sheet would show office equipment at cost, less accumulated depreciation. Office equipment $1,800 Less accumulated depreciation 50 $1,750 Book value
3 Summarize the adjustment process. 3-26
3 Exhibit 7 Adjusting Entries—NetSolutions (continued)
3 Exhibit 7 Adjusting Entries—NetSolutions (continued) .
4 Prepare an adjusted trial balance. 3-29
4 Exhibit 9 Adjusted Trial Balance—NetSolutions
