Accounting Adjusting Entries on the Real Samples
- Using the information from unadjusted trial balance and the information about supplies on hand at June.30, the Supplies account will fall while Supplies Expense will rise by $4,700 ($5,000 Unadjusted TB – $300 on hand).
- The Prepaid Insurance account will be corrected by the amount of the 4- month period of $9,333.33 ($28,000/12months x 4months) which will be recognized as the Insurance Expense.
- The partial depreciation for the 6-month period of the computer will drop the historical cost of the item by $10,700 using the Accumulated Depreciation account and record the Depreciation Expense account on the same amount. The 6-month depreciation of the computer will be calculated:
Depreciation for 6-month period = $214,000/10 year x 6 months/12 = $10,700
- The incurred interest expense must be recorded for the 5-month period using information about note amount, interest rate and months used and will affect the Interest Payable on the liabilities side of balance by $1,250:
Interest expense = $30,000 x 10%x 5months/12 = $1,250
- The Security Revenue will be recognized for the 2-month period doing adjusting entry of the Unearned Security Revenue account by $10,000 ($15,000/3months x 2months).
- The Salaries Expense account must be adjusted on the amount earned but hasn’t paid salaries for 2-days working by 3 employees. As the result of this entry, the Salaries Payable will be raised by the same amount as Salaries Expense account of $1,500 ($250 x 2days x3persons).
- The service provided but hasn’t paid the client must be recognized by $4,000 using Security Revenue and Accounts Receivable accounts.
Completion of Adjusted Trial Balance Worksheet
After adjusted entries are recorded to the debit and credit columns of the adjusted trial balance worksheet, the adjusted trial balance will be computed depending on the required adjusted entries.
The completed adjusted trial balance worksheet is the useful tool for preparing financial statements such as Income Statement, Statement of Changes in Equity and a Balance Sheet.
Preparation of Financial Statements
Step 1. Income statement
First statement which must be prepared is the Income Statement which shows the difference between the company total revenue and total expense for the fiscal year ended June 30. If the total revenues exceed the total expenses the company records net income, otherwise net loss.
Using the adjusted balances of revenue and expense accounts from adjusted trial balance worksheet, the Company earned net income of $67,517. The format of the Income Statement is presented in the screenshot below.
Step 2. Statement of changes in equity
After completing of Income Statement, the Statement of Changes in Equity will be prepared using information about beginning balances Common Stock and Retained Earnings accounts.
As the Common Stock stills without any changes, the Net Income will be added and Dividends will be subtracted from Retained Earnings. The ending balance of Retained Earnings equal $144,517, the total equity as of June 30, 2017, will be $184,517.
Step 3. Balance sheets
Using the remaining balances of accounts from adjusted trial balance, the balance sheet will be prepared using liquidity principal presentation assets and liabilities. The information from Statement of changes in Equity will be used in the Equity section of this report.
The total assets of $230,267 will equal the summary of total liabilities of $47,750 and total equity of $185,517. As the balance equation is right, the Balance Sheet is prepared correctly.
Closing Entries Accounting
The revenue and expense accounts are temporary and must be closed at the end of each accounting period. The security revenue account will be closed to the credit of income summary account, while the balance of each expense account will be debited to the summary account.
The resulting balance of income summary will be closed to the credit of retained earnings if revenue exceeds expenses or to the debit side of the account if company defines net loss.
The dividends account is closed to the debit of the retained earnings as it presents distribution net income to the company shareholders.
Keep your accounting record accurately.
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