Record the necessary adjusting journal entries for the following transactions: Received $1,500 cash from customer for three months of service beginning October 1 and ending Decemb... Record the necessary adjusting journal entries for the following transactions: Received $1,500 cash from customer for three months of service beginning October 1 and ending December 31. The company recorded a $1,500 debit to Cash and a $1,500 credit to Unearned Revenue. Employees are paid $1,000 on Monday following the five-day work week. October 31 is on Friday. The company pays $240 on October 1 for its six-month auto insurance policy. The company recorded a $240 debit to Prepaid Insurance and a $240 credit to Cash. The company purchased office furniture for $6,300 on January 2. The company recorded a $6,300 debit to Office Furniture and a $6,300 credit to Accounts Payable. Annual depreciation for the furniture is $900. The company began October with $50 of supplies on hand. On October 10, the company purchased supplies on account of $100. The company recorded a $100 debit to Supplies and a $100 credit to Accounts Payable. The company used $120 of supplies during October. The company received its electric bill on October 31 for $125 but did not pay it until November 10. The company paid November's rent of $800 on October 30. On October 30, the company recorded an $800 debit to Rent Expense and an $800 credit to Cash.

Understand the Problem

The question describes several business transactions that occurred in October and asks us to analyze and record the necessary adjusting journal entries at the end of October. These entries are needed to ensure revenue and expenses are recognized in the correct accounting period according to accrual accounting principles.

Answer

Adjusting journal entries include adjustments to unearned revenue, wage expense, prepaid insurance, depreciation expense, supplies expense, and utilities expense.

Here are the adjusting journal entries:

  • Unearned Revenue: Debit $500, Credit Service Revenue $500 ($1,500 / 3 months = $500 per month)
  • Wage Expense: Debit $600, Credit Wages Payable $600 ($1,000 / 5 days = $200 per day, $200 * 3 days = $600)
  • Prepaid Insurance: Debit $40, Credit Insurance Expense $40 ($240 / 6 months = $40 per month)
  • Depreciation Expense: Debit $75, Credit Accumulated Depreciation $75 ($900 / 12 months = $75 per month)
  • Supplies Expense: Debit $120, Credit Supplies $120 (Beginning Supplies $50 + Purchased Supplies $100 - Ending Supplies $30 = $120 used)
  • Utilities Expense: Debit $125, Credit Accounts Payable $125
  • The rent paid in advance should be recorded with a debit to Prepaid Rent and a credit to Cash.
Answer for screen readers

Here are the adjusting journal entries:

  • Unearned Revenue: Debit $500, Credit Service Revenue $500 ($1,500 / 3 months = $500 per month)
  • Wage Expense: Debit $600, Credit Wages Payable $600 ($1,000 / 5 days = $200 per day, $200 * 3 days = $600)
  • Prepaid Insurance: Debit $40, Credit Insurance Expense $40 ($240 / 6 months = $40 per month)
  • Depreciation Expense: Debit $75, Credit Accumulated Depreciation $75 ($900 / 12 months = $75 per month)
  • Supplies Expense: Debit $120, Credit Supplies $120 (Beginning Supplies $50 + Purchased Supplies $100 - Ending Supplies $30 = $120 used)
  • Utilities Expense: Debit $125, Credit Accounts Payable $125
  • The rent paid in advance should be recorded with a debit to Prepaid Rent and a credit to Cash.

More Information

Adjusting entries are made at the end of an accounting period to update certain accounts and ensure that the financial statements accurately reflect the company's financial position and performance.

Tips

A common mistake is not understanding the matching principle, which requires recognizing revenues and expenses in the same period that they are earned or incurred, regardless of when cash changes hands.

Sources

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