Adjusting Journal Entries Flashcards
Unearned Revenue
Cash is received before revenue is earned
To record unearned revenue
Dr. Cash
Cr. Unearned revenue
To adjust for when earned
Dr. Unearned revenue
Cr. Revenue
Deferred expenses
Cash is paid before expense is incurred - prepaids
To record prepaid expense
Dr. Prepaid Expense
Cr. Cash
To incur the expense
Dr. Expense
Cr. Prepaid expense
Accrued revenues
Cash is received after revenue is earned
Dr. Accounts receivable
Cr. Revenue
Accrued expenses
Cash is paid after expense is incurred
Dr. Expense
Cr. Accrued liability
Rules for adjusting entries
- adjusting entries never involve a cash account
- all adjusting entries hit one income statement account and one balance sheet account
- adjusting entries must be before year end
Adjusting entries: unearned revenue
Received $250,000 on Dec 1, year 1 for services to be performed equally during December year 1 and January year 2
December 1 Entry
Dr. Cash 250,000
Cr. Unearned revenue 250,000
Dec 31 adjusting entry
Dr. Unearned revenue 125,000
Cr. Revenue 125,000
Adjust entries: accrued interest
On Nov 1 we borrowed $2,000,000 from bank a 3% with interest due annually every Nov 1. Principal will be paid back by Nov 1, year 11
Entry on Nov. 1
Dr. Cash 2,000,000
Cr. Note Payable 2,000,000
Entry Dec. 31
Dr. Interest expense 10,000
Cr. Interest Payable 10,000
A company purchased for $300 a 3 year insurance policy on 1/1 Year 2 and expensed it all on the payment date
Entry on 1/31 Year 2
Dr. Prepaid insurance 200
Cr. Insurance expense 200
Since it is as of year end 1/3 expensed
$2,000 in credit sales during year 2 were not recorded in general ledger because they had not been collected in cash
Entry on 1/31 Year 2
Dr. Accounts Receivable 2,000
Cr. Sales Revenue 2,000
3,000 was received in advance was recorded as service revenue only 30% of service was performed
Entry on 1/31 Year 1
Dr. Sales Revenue 2,100
Cr. Unearned revenue 2,100
$450 utility bill for the month of December still not entered in A/P at year end
Entry on 1/31 Year 1
Dr. Utility Expense 450
Cr. A/P 450
$4,000 in rent covering 4 year period, no entry was recorded for prepayment in year 2
Entry on 1/31 Year 2
Dr. Rent expense 1,000
Cr. Prepaid rent 1,000
Direct write off was used to clear $650 in bad debt even though company uses the allowance method
Entry on 1/31 Year 1
Dr. Allowance 650
Cr. Bad debt expense 650
Purchased $1,300 in raw materials and shipped FOB shipping. Good were not included in inventory at year end
Entry on 1/31 Year 1
Dr. Inventory 1,300
Cr. A/P 1,300
Purchased AFS security for $1,500. By year end the FV was $2,000 and adjustment was made
Entry on 1/31 Year 1
Dr. Valuation account 500
Cr. Unrealized gain of AFS 500
