Adjusting Basics
Clue: Money received from a customer before the company provides the service.
Unearned Revenue
Clue: Adjusting entries are normally recorded at this time.
the end of the accounting period
Clue:
Beginning Supplies = $500
Additional Purchases = $200
Supplies Remaining = $600
How much was used?
Calculation:
$500 + $200 = $700
$700 − $600 = $100
Unearned Revenue is initially classified as this type of account
Liability Account
Choose the correct reason accountants prepare adjusting entries:
A. To reduce expenses
B. To record cash payments
C. To make accounts show the real financial situation
D. To add transactions to the ledge
C. To make accounts show the real financial situation
Clue: A payment made in advance for goods or services that will be used in the future.
Prepaid Expense
Clue: Buildings, equipment, and motor vehicles are generally depreciated, but this asset is NOT depreciated.
Land
Clue: Paper, pens, cleaning materials, and ink are examples of this.
What are Supplies?
Mohamed pays £1,200 for 12 months of insurance.
Six months have passed.
Calculate Insurance Expense.
£1,200 ÷ 12 = £100/month
£100 × 6 = £600
An asset costs $10,000, has a residual value of $1,000, and a useful life of 5 years. Calculate annual Depreciation Expense.
($10,000 − $1,000) ÷ 5
= $1,800
Clue: When a company purchases supplies, they are initially treated as this type of account.
Asset
Omar pays £12,000 for 12 months of rent on January 1. At the end of March, calculate Rent Expense.
Calculation:
£12,000 ÷ 12 = £1,000/month
3 months × £1,000 = £3,000
Clue: These are small corrections or updates made to accounts so they show the true story of the business at the end of the period.
What is adjusting the accounts?
Clue:
Beginning Supplies = $0
Purchased = $500
Remaining = $150
Calculate Supplies Used.
$0 + $500 − $150 = $350
A business begins the period with $400 of supplies.
During the period, it purchases another $1,600.
At the end of the period, a physical count shows $550 of supplies remaining.
Calculate supplies expense
Supplies
Available:
$400 + $1,600 = $2,000
Used:
$2,000 − $550 = $1,450
Therefore:
Supplies Expense = $1,450