The Adjusting Process

1. 3 The Adjusting Process Student Version

2. 1 Describe the nature of the adjusting process. 3-2

3. 1 Types of Accounts Requiring Adjustment Prepaid expenses are the advance payment of future expenses and are recorded as assets when cash is paid.

4. 1 Types of Accounts Requiring Adjustment Unearned revenues are the advance receipt of future revenues and are recorded as liabilities when cash is received.

5. 1 Types of Accounts Requiring Adjustment Accrued revenues are unrecorded revenues that have been earned and for which cash has yet to be received.

6. 1 Types of Accounts Requiring Adjustment Accrued expenses are unrecorded expenses that have been incurred and for which cash has not been paid.

7. 2 Journalize entries for accounts requiring adjustment. 3-7

8. Summary of Basic Adjustments

9. 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

10. 760 2,040 2 Supplies Expense Supplies 14 55 Bal. 2,000 Bal. 800 Dec. 31 1,240 Dec. 31 1,240

11. Effect of Omitting Adjustment

12. 2 Prepaid Expenses The debit balance of $2,400 in NetSolutions’ Prepaid Insurance account represents the December 1 prepayment of insurance for 12 months.

13. 2,200 2 Prepaid Insurance Insurance Expense 15 56 Dec. 31 200 Bal. 2,400 Dec. 31 200

14. 2 Unearned Revenues The December 31 unadjusted trial balance of NetSolutions indicates a balance in the unearned rent account of $360.

15. 2 Unearned Rent Rent Revenue 23 42 Dec. 31 120 Bal. 360

16. Unearned Rent 23 240 Dec. 31 120 Bal. 360 Bal. 2 Rent Revenue 42 Dec. 31 120

17. Effect of Omitting Adjustment

18. 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.

19. Bal. 2,720 2 Fees Earned Accounts Receivable 12 41 Bal. 2,220 Bal. 16,340 Dec. 31 500

20. Bal. Bal. 2,720 16,840 2 Fees Earned Accounts Receivable 12 41 Bal. 2,220 Bal. 16,340 Dec. 31 500 Dec. 31 500

21. Effect of Omitting Adjustment

22. 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.

23. Bal. 4,525 2 22 Wages Payable Wages Expense 51 Bal. 4,275 Dec. 31 250

24. Bal. 4,525 2 22 Wages Payable Wages Expense 51 Dec. 31 250 Bal. 4,275 Dec. 31 250

25. 2 The journal entry for the payment of wages on January 10 is shown below. After posting

26. Effect of Omitting Adjustment

27. 2 NetSolutions estimates the depreciation on its office equipment to be $50 for the month of December.

28. 2 Depreciation Expense Accum. Depr.—Office Equip. 19 53 Dec. 31 50

29. 2 Depreciation Expense Accum. Depr.—Office Equip. 19 53 Dec. 31 50 Dec. 31 50

30. 2 NetSolutions’ balance sheet would show office equipment at cost, less accumulated depreciation. Office equipment $1,800 Less accumulated depreciation 50 $1,750 Book value

31. 3 Summarize the adjustment process. 3-26

32. 3 Exhibit 7 Adjusting Entries—NetSolutions (continued)

33. 3 Exhibit 7 Adjusting Entries—NetSolutions (continued) .

34. 4 Prepare an adjusted trial balance. 3-29

35. 4 Exhibit 9 Adjusted Trial Balance—NetSolutions