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Questions and Answers
What is the primary objective of accrual accounting?
What is the purpose of adjusting the accounts at the end of the fiscal period?
What type of account is Supplies in the Markell Company example?
Why were no entries made to record the usage of office supplies throughout the year?
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What type of adjusting entry would be necessary for the Supplies account?
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What is the purpose of an adjusting entry?
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What is the term for the process of assigning revenues and expenses to the correct accounting period?
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What type of account would receive a credit in an adjusting entry for unearned revenue?
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What is the term for the account that represents prepaid expenses that have not yet been used?
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What is the purpose of preparing an Income Statement?
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Study Notes
Adjusting Entries for Supplies
- Supplies account balance of $15,000 at year-end is inaccurate because it doesn't account for supplies used during the year.
- To get an accurate value, an inventory of supplies is taken, and let's assume the remaining supplies are worth $3,000.
- To adjust the Supplies account, a credit of $12,000 is needed to bring the balance down to $3,000.
- The corresponding debit is to a new account called Supplies Expense, which appears on the Income Statement.
Prepaid Expenses
- Prepaid expenses are items paid for in advance, but their benefits extend into the future (e.g., Insurance and Rent).
- Unearned revenue is a credit to the Unearned Revenue account.
Adjusting Entries and the Worksheet
- Adjusting entries are journal entries that assign revenue or expense to the correct accounting period.
- The worksheet is used to record and total adjustments, and then transfer Balance Sheet and Income Statement accounts to their respective columns.
- The Net Income is calculated by subtracting Expenses from Revenue.
Accrual Accounting
- Accrual accounting records revenue and expenses when they occur, regardless of cash receipt or payment.
- This approach ensures accurate financial positioning.
Adjusting the Accounts
- At the end of the fiscal period, the senior accountant adjusts the accounts to bring the balance sheet accounts to their true values.
- Adjusting entries assign revenue or expense to the correct accounting period.
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Description
Learn how to adjust entries for supplies in accounting, including taking inventory and determining the accurate value. Practice with Markell Company's example.
