AJE Flashcards
a bank has a loan outstanding on which payment is not due for some time. During the accounting period just ended, the bank has earned $200 of interest income on the loan as a result of the passage of time. If the bank does nothing, their income and assets will both be understated. To correct this, they record the following adjusting entry:
DR Interest Receivable (A) 200
CR Interest Revenue (R) 200
a landlord who earned $500 for last month’s rent that has not yet been paid as of the end of the accounting period.
DR Rent Receivable (A) 500
CR Rent Revenue (R) 500
utility company that has earned $80 for electricity provided but not yet billed or paid for as of the last day of the accounting period.
DR AR (A) 80 CR Revenue (R) 80
assume that a landlord received $1,000 for rent for the months of December and January on December 1. Upon receipt of the cash the landlord records:
At the end of December, prior to preparing financial statements, the landlord records the following adjusting entry:
DR Cash (A) 1000 CR Deferred Rent Revenue (L) 1000
DR Deferred Rent Revenue (L) 500
CR Rent Revenue (R) 500
Another example is an insurance company that receives a $1,200 insurance payment in advance on November 1 for a six-month insurance policy. The coverage period begins on November 1. They record the following journal entry for this cash transaction:
DR Cash (A) 1200 CR Deferred Revenue (L) 1200
Now, assume the insurance company closes its books and prepares financial statements at the end of each calendar quarter, on March 31, June 30, September 30 and December 31. Thus, even though as of November 30, one month has passed and they have earned a month’s worth of revenue, they do not record anything because they are not preparing financial statements. However, on December 31 they record the following adjusting entry to record revenue for both November and December:
DR Deferred Revenue (L) 400 CR Revenue (R) 400
Assume a company consumes $100 worth of electricity in one accounting period and receives and pays the bill in the next accounting period. At the end of the last day of the first accounting period they record the following adjusting entry that accounts for the electricity they have consumed and the amount they owe:
DR Electricity Expense (E) 100
CR Electricity Payable (L) 100
When they pay the bill in the next period they would record:
DR Electricity Payable (L) 100
Cash (A) 100
assume that the company usually pays their monthly rent on the fifth day of the next month. If their rent is $1,500, then on the last day of the accounting period they record the following adjusting entry for that month’s rent:
DR Rent Expense (E) 1500
CR Rent Payable (L) 1500
Another common example is when a company’s accounting period ends in the middle of a pay period. In this case, as of the last day of the accounting period the company owes the employee’s wages that will be paid early in the next accounting period. To record unpaid wages of $2,000, the company would record the following adjusting entry at the end of the period:
DR Wages Expense (E) 2000
CR Wages Payable (L) 2000
The most common examples of adjusting entries for these are items that are paid for in advance and then are consumed as time passes. For example, assume that on November 1 the company pays $2,400 for six months’ rent in advance, and the six months begins on November 1. On November 1, they record:
DR Prepaid Rent (A) 2400 CR Cash (A) 2400
Now, assume the company makes adjusting entries and prepares financial statements at the end of each calendar quarter. Since financial statements are not prepared at the end of November, no entry is made for rent expense at that time. However, at the end of December the records must be brought up to date by recording the following adjusting entry to record rent expense for November and December and the amount of the prepaid rent that was consumed:
DR Rent Expense (E) 800
CR Prepaid Rent (A) 800
A company ends the period owing its employees $10,000 for work already performed.
DR Wage Expense (E) 10000
CR Wages Payable (L) 10000
A company paid $18,000 for one year of rent beginning on October 1st. The company prepares financial statements at the end of each calendar quarter.
DR Rent Expense (E) 4500
CR Prepaid Rent (A) 4500
A company ends the period owing its landlord $2,500 for the last month’s rent. The rent was based on sales the company generated last month in its rented space.
DR Rent Expense (E) 2500
CR Rent Payable (L) 2500
As of the end of the period, a company has consumed $450 worth of electricity that it has not yet paid for.
DR Electricity Expense (E) 450
CR Electricity Payable (L) 450
On October 1st a law firm received an advance payment of $36,000 to serve as a retainer (they stand ready to provide services on an as-needed basis) for a corporation for one year. The firm prepares financial statements at the end of each calendar quarter.
DR Deferred Revenue (L) 9000
CR Sales Revenue (R) 9000
As of the end of the period, a car rental company has cars currently rented that have incurred $35,000 of charges that have not yet been invoiced or paid.
DR AR (A) 35000 CR Sales Revenue (R) 35000
A corporation has employees at job sites with unpaid wages of $35,000 as of the end of the year.
DR Wages Expense (E) 35000
CR Wages Payable (L) 35000
An insurance company collects $2,400 for a six-month policy on December 1st that begins on December 1st, and they prepare financial statements at the end of each calendar quarter.
DR Deferred Revenue (L) 400
CR Sales Revenue (R) 400
A company pays an insurance company $2,400 for a six month policy on December 1st that begins on December 1st, and they prepare financial statements at the end of each calendar quarter.
DR Insurance Expense (E) 400
CR Prepaid Insurance (A) 400
A florist pays $12,000 for a delivery van on October 1st that they expect to last for six years and have no value at the end of six years. They prepare financial statements at the end of each calendar quarter.
DR Depreciation Expense (E) 500
CR Accumulated Depreciation (a contra-asset) 500
Depreciation expense for 3 of 72 months (24,000 x 3 / 72 = 500)
Assume that Starbucks provided coffee service to HomeAway’s corporate headquarters in Austin during the month of September 2019, but that as of the end of the month HomeAway had not paid the $15,000 charge. What adjusting entry did Starbucks record on September 29, 2019 (the last day of the fiscal year) when they closed their books to prepare financial statements, and what entry did they record when they received payment from HomeAway later in October of 2019.
September 29, 2019
DR AR (A) 15000
CR Sales Revenue (R)
October X, 2019 DR Cash (A) 15000 CR AR (A) 15000
Refer to the same transactions as in the previous question. What journal entries did HomeAway record at the end of September, assuming they close their books and prepare financial statements at that time, and in October when they made payment.
September 29, 2019
DR Coffee Expense (E) 15000
CR Coffee Payable (L) 15000
October X, 2019
DR Coffee Payable (L) 15000
CR Cash (A) 15000
Assume that Bazaarvoice paid Starbucks for coffee service at their corporate headquarters in Austin one year in advance, paying $180,000 on January 1, 2020. Also assume that Starbucks records adjusting entries each month in order to prepare internal financial statements. What journal entry did Starbucks record for the receipt of cash on January 1, 2020 and what adjusting entry did they record on January 31, 2020?
January 1, 2020
DR Cash (A) 180000
CR Deferred Revenue (L) 180000
January 31, 2020
DR Deferred Revenue (L) 15000
CR Sales Revenue (R) 15000
Refer to the same transactions as in the previous question. What journal entries did Bazaarvoice record on January 1, 2020, and at the end of January, assuming they close their books and prepare financial statements monthly.
January 1, 2020
DR Prepaid Expense (A) 180000
CR Cash (A) 180000
January 31, 2020
DR Coffee Expense (E) 15000
CR Prepaid Expense (A) 15000