For the following, prepare a correcting entry, showing your work. Your final answer must be ONE journal entry. If a problem asks for impact to the financial statements, you must address Revenue/Expense, Net Income, and Assets/Liabilities. 1. On February 28, your company takes out a 2-year insurance policy that has a $3,000 annual premium. The entire amount is paid when the policy is taken out and is recorded in Prepaid Insurance. In the same year the policy is taken out, you notice the adjusting entry debits Insurance Expense and credits Prepaid Insurance for $1500. What is your correcting entry? If the correcting entry is not made, what is the impact to the financial statements? 2. Your company prepays rent 2 years in advance. On August 1, they prepaid $15,000 for 2 years' rent and recorded the entire amount to Rent Expense. At the end of the year, the AJE DR Prepaid Rent and CR Rent Expense for $8,000. What is the correcting entry? If the correcting entry is not made, what is the impact to the financial statements? 3. A $25,000, 8%, 10-month note is assumed by your company October 1. At the time the note was assumed, they DR Cash and CR Notes Payable. If no adjusting entry was made at year-end, what is your correcting entry?
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
Promissory Note:
A promissory note is a marked record containing a composed guarantee to pay an expressed total to a predefined individual or the conveyor at a predetermined date or on request. It ties the borrowers by regulation to pay the bank the predetermined amount.
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