Adjusting Entries Justin Park CASE

7/29/2019 Adjusting Entries Justin Park CASE

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ADJUSTING ENTRIESThe are two ways of prepare the accounts of a

Business:

1. Accrual Basis2. Cash Basis

1Prepared by Winston Delahaye


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The Accrual Basis Revenues are recorded when they are earned.

Expenses are recorded when they are incurred.



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The Cash Basis Revenues are recorded when the cash is receipted.

Expenses are recorded when the cash is paid.



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Some Relevant Accounting

ConceptsAccounting period concept - a period, usually one

year when a business prepares its detail financialstatements to ascertain profitability.

Revenue concept states that an accountant shouldrecord income when it is earned. Revenue is earned

when a business has discharged its obligation under acontract to make, deliver goods or services.



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Some Relevant Accounting

Concepts Time period concept - requires that reports are made

often to measure income and that accounts areupdated at the end of each period.

Accruals/Matching Concept - expenses incurredshould be matched against revenues earned during the

same period.



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Adjusting Entries1. These are entries that are usually made at the close of

an accounting period to ensure that the matchingconcept is being complied with.

2. They are also needed to update the asset and liabilityaccounts.

3. To properly measure net income or loss on theincome statement and assets and liabilities on thebalance sheet.



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Adjusting EntriesCategories of adjusting entries:

Accruals;

Prepayments



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Types of adjusting entries1. Prepaid expenses

2. Unearned revenues

3. Accrued expenses4. Prepaid revenues

5. Depreciation



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Example

Case Three(3) from worksheet #2.

Justin Park Legal Services



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Journalizing Adjusting EntriesAcc # Details Dr Cr

a) 523 Office Supplies Exp. 5,000

142 Office Supplies 5,000

To record supplies expense

b) 541 Depn. Exp-Office equip 30,000

181.1 Acc. Depn. Office equip. 30,000

To record depn. On Office Equip.

c) 542 Depn exp. comp. equip 10,000

181 Acc. Depn comp. equip.. 10,000

To record depn. Of comp. equip.



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Journalizing Adjusting EntriesAcc # Details Dr Cr

d) 535 Insurance Expense 1,000

145 Prepaid Insurance 1,000To record Interest expense

e) 219 Wages Expense 3,000

511 Wages Payables 3,000

To accrue wages expense

49,000 49,000



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Worksheet

Adjusted Trial Balance


Account Title Acc # Unadjusted Adjustments Adjusted Trial Balance


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Account Title Acc # Unadjusted Adjustments Adjusted Trial Balance

Trial Balance

Dr Cr Dr Cr Dr Cr

Accounts $ $ $ $ $ $

Cash 101 70 000 70,000

Office Supplies 142 8 000 5,000 3,000

Prepaid Insurance 145 12 000 1,000 11,000

Office Equipment 181 150 000 150,000Accumulated Depreciation- OfficeEquipment

181.1 30,000 30,000

Computer Equipment 187 60 000 60,000

Accumulated Depreciation-Computer Equipment

187.1 10,000 10,000

Notes Payable 201 50 000 50,000Accounts Payable 202 5 000 5,000

Wages Payable 219 3,000 3,000

Justin Park, Capital 311 114 000 114,000

Justin park, Drawings 312 50 000 50,000

Client Fees 401 400 000 400,000

Wages Expenses 511 120 000 3,000 123,000

Rent Expense 521 50 000 50,000

Office Supplies Expense 523 5,000 5,000Telephone Expense 525 10 000 10,000

Utilities Expense 533 39 000 39,000

Insurance Expense 535 1,000 1,000

Depreciation Expense - OfficeEquipment

541 30,000 30,000

Depreciation ExpenseComputerEquipment

542 10,000 10,000

Net Income

TOTAL 569 000 569 000 49,000 49,000 612,000 612,000


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Worksheet - Income Statement & Balance Sheet


Account Title Acc # Income Statement Balance Sheet

Dr Cr Dr Cr

Accounts $ $ $ $

Cash 101 70,000

Office Supplies 142 3,000Prepaid Insurance 145 11,000

Office Equipment 181 150,000

Accumulated Depreciation- Office Equipment 181.1 30,000

Computer Equipment 187 60,000

Accumulated Depreciation- ComputerEquipment

187.1 10,000

Notes Payable 201 50,000

Accounts Payable 202 5,000

Wages Payable 219 3,000

Justin Park, Capital 311 114,000

Justin park, Drawings 312 50,000

Client Fees 401 400,000

Wages Expenses 511 123,000

Rent Expense 521 50,000

Office Supplies Expense 523 5,000

Telephone Expense 525 10,000

Utilities Expense 533 39,000

Insurance Expense 535 1,000

Depreciation Expense - Office Equipment 541 30,000

Depreciation ExpenseComputer Equipment 542 10,000

Net Income 132,000 132,000

TOTAL 400,000 400,000 344,000 344,000


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Income Statement for the year ended December 31, 20-

$ $Client Fees 400,000

Wages Expenses 123,000

Rent Expense 50,000

Office Supplies Expense 5,000

Telephone Expense 10,000

Utilities Expense 39,000

Insurance Expense 1,000

Depreciation Expense - Office Equipment 30,000

Depreciation ExpenseComputer Equipment 10,000 268,000

Net Income 132,000

Prepared by Winston Delahaye 15

J ti P k L l S i


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Statement of Owner's Equity for the year ended

December 31, 20-

$ $

Capital at start (January 1, 20-) 114,000

(add) Net Income 132,000

(less) drawings (50,000) 82,000

Capital at end (Dec 31, 20-) 196,000

Prepared by Winston Delahaye 16


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Preferred Balance Sheet FormatAssets

Fixed assets Cost AccumulatedDepreciation Net Book Value

Office Equipment 150,000 30,000 120,000

Computer Equipment 60,000 10,000 50,000

210,000 40,000 170,000

Current assets

Office Supplies 3,000

Prepaid Insurance 11,000Cash 70,000 84,000

Total Assets 254,000



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Preferred Balance Sheet FormatLiabilities

Current Liabilities

Accounts Payable 5,000

Wages Payable 3,000 8,000

Long-term Liabilities

Notes Payable 50,000

Total liabilities 58,000

Owner's Equity

Justin's Capital 196,000

Total liabilities & Equity 254,000



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Journalizing Closing EntriesDate Details Dr CR

31-Dec Client Fees 400,000

Income Statement (Summary) 400,000

31-Dec Income Statement (Summary)268,000

Wages Expenses 123,000

Rent Expense 50,000

Office Supplies Expense 5,000

Telephone Expense 10,000Utilities Expense 39,000

Insurance Expense 1,000

Depreciation Expense - OfficeEquipment

30,000

Depreciation Expense ComputerEquipment

10,000

31-Dec Income Statement (Summary)114,000

Capital Account (Justin's) 114,000

31-Dec Capital Account(Justin's) 50,000

Drawings Account 50,000 19Prepared by Winston Delahaye


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Post Closing Trial BalanceJustin Park Legal Services

Post-closing Trial Balance as at December 31, 20_

Details DR CR

Cash 70,000

Office Supplies 3,000

Prepaid Insurance 11,000

Office Equipment 150,000Accumulated Depreciation- OfficeEquipment

30,000

Computer Equipment 60,000

Accumulated Depreciation- ComputerEquipment

10,000

Notes Payable 50,000

Accounts Payable 5,000

Wages Payable 3,000

Justin Park, Capital 196,000

294,000 294,000


Documents

Adjusting Entries Justin Park CASE