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ADJUSTING ENTRIES EXAMPLE WITH SOLUTION

Solved Example of Adjusting Entries

DEBIT BALACNES:
Cash Rs.26,000; Supplies Rs.14,000; Accounts receivable Rs.24,000; Equipment Rs.36,000; Salaries expense Rs.20,000; Advertising expense Rs.16,000.
CREDIT BALANCES:
Accounts payable Rs.5,000; Accumulated depreciation Rs.5,000; Mobeen Capital Rs.56,000; Commission income Rs.70,000.
BALANCE DAY DATA (31.12.08)
  1. Unearned commission Rs.5,000.
  2. Depreciation expense was estimated at Rs.6,000.
  3. Unpaid utility expense for the period Rs.7,000.
  4. Supplies expense Rs.8,000.
  5. Commission accrued Rs.9,000.
  6. Advertising expense for the period is 20%.

SOLUTION
(a) Trial balance shows commission income Rs.70,000 while adjustment data shows unearned commission Rs.5,000. It means out of Rs.70,000, only Rs.65,000 is earned. Actual income is less than the trial balance amount. It the identification of Unearned income initially recorded as income. Entry will be:
Commission income            5,000 (Dr.)
    Unearned commission                        5,000 (Cr.)


(b) Simple depreciation. Entry will be:
Depreciation expense            6,000 (Dr.)
    Allowance for depreciation                    6,000 


(c) The word "unpaid" is the identification of accrued expense. Entry will be:
Utilities expense                    7,000 (Dr.)
    Utilities payable                                  7,000 (Cr.)


(d) Trial balance shows the Supplies Rs.14,000 (asset) while adjustment data shows supplies expense Rs.8,000. It means out of Rs.14,000, only Rs.8,000 of supplies was consumed. Actual expense is less than the trial balance amount. It is the identification of Prepayment initially recorded as asset. Entry will be:
Supplies expense                    8,000 (Dr.)
    Supplies                                              8,000 (Cr.)


(e) Word "accrued" shows the accrued income. Entry will be:
Commission receivable            9,000 (Dr.)
    Commission income                            9,000 (Cr.)


(f) Only 20% advertising is expired. It means actual expense is less than the trial balance amount. It is the identification of Prepayment initially recorded as expense. Entry will be:
Prepaid advertising                                12,800 (Dr.)
    Advertising Expense                                                12,800 (Cr.)

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