3
The Adjusting Process
Student Version
3-1
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.
3-3
1
Types of Accounts
Requiring Adjustment
Unearned revenues are the
advance receipt of future
revenues and are recorded
as liabilities when cash is
received.
3-4
1
Types of Accounts
Requiring Adjustment
Accrued revenues are unrecorded
revenues that have been earned
and for which cash has yet to be
received.
3-5
1
Types of Accounts
Requiring Adjustment
Accrued expenses are unrecorded
expenses that have been incurred
and for which cash has not been
paid.
3-6
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
3-8
2
Supplies
Bal.
3-9
2,000 Dec. 31
760
14
Supplies Expense
1,240 Bal.
Dec. 31
800
1,240
2,040
55
2
Prepaid Expenses
The debit balance of $2,400 in
NetSolutions’ Prepaid
Insurance account represents
the December 1 prepayment of
insurance for 12 months.
3-10
2
Prepaid Insurance
Bal.
2,400 Dec. 31
2,200
3-11
15
200
Insurance Expense
Dec. 31 200
56
2
Unearned Revenues
The December 31 unadjusted
trial balance of NetSolutions
indicates a balance in the
unearned rent account of $360.
3-12
2
Unearned Rent
Dec. 31
120 Bal.
3-13
23
360
Rent Revenue
42
2
Unearned Rent
Dec. 31
120 Bal.
Bal.
3-14
23
360
240
Rent Revenue
Dec. 31
42
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.
3-15
2
Accounts Receivable 12
Bal.
2,220
Dec. 31
500
Bal.
2,720
3-16
Fees Earned
Bal.
41
16,340
2
Accounts Receivable 12
Bal.
2,220
Dec. 31
500
Bal.
2,720
3-17
Fees Earned
Bal.
Dec. 31
Bal.
41
16,340
500
16,840
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.
3-18
2
Wages Payable
3-19
22
Wages Expense
Bal.
4,275
Dec. 31
250
Bal.
4,525
51
2
Wages Payable
Dec. 31
3-20
22
250
Wages Expense
Bal.
4,275
Dec. 31
250
Bal.
4,525
51
2
The journal entry for the payment of wages
on January 10 is shown below.
After
posting
3-21
2
NetSolutions estimates the
depreciation on its office
equipment to be $50 for
the month of December.
3-22
2
Depreciation Expense
Dec. 31
50
3-23
53
Accum. Depr.—Office Equip. 19
2
Depreciation Expense
Dec. 31
50
3-24
53
Accum. Depr.—Office Equip. 19
Dec. 31
50
2
NetSolutions’ balance sheet would
show office equipment at cost, less
accumulated depreciation.
Office equipment
Less accumulated
depreciation
$1,800
50
$1,750
Book
value
3-25
3
Summarize the
adjustment process.
3-26
3
Exhibit 7
3-27
Adjusting Entries—NetSolutions
(continued)
3
Exhibit 7
Adjusting Entries—NetSolutions (continued)
.
3-28
4
Prepare an adjusted
trial balance.
3-29
4
Exhibit 9
3-30
Adjusted Trial Balance—NetSolutions
3-31