Explanation Adjusting entries: Adjusting entries are the journal entries which are recorded at the end of the accounting period to correct or adjust the revenue and expense accounts, to concede with the accrual principle of accounting. a. Prepare the adjusting entry to record the prepaid rent. Date Accounts title and explanation Post Ref. Debit ($) Credit ($) January 31 Rent Expense (E–) 475 Prepaid rent (A–) (1) 475 (To record the adjusting entry for prepaid rent) Table (1) Rent expense is an expense and it decreases the stockholders’ equity account. Therefore, debit rent expense with $475. Prepaid rent is an asset account and it is decreased. Therefore, credit the prepaid rent with $475. Working note: Calculate the amount of prepaid rent expired during January: Prepaid rent = Rent amount Number of months = $ 5 , 700 12Months = $ 475 (1) b. Prepare the adjusting entry to record the prepaid advertising. Date Accounts title and explanation Post Ref. Debit ($) Credit ($) January 31 Advertising Expense (E–) 310 Prepaid advertising (A–) (2) 310 (To record the adjusting entry for the prepaid advertising) Table (2) Advertising expense is an expense and it decreases the stockholders’ equity account. Therefore, debit advertising expenses with $310. Prepaid advertising is an asset and it is decreased. Therefore, credit prepaid advertising with $310. Working note: Calculate the amount of prepaid advertising expired during the month July: Prepaid advertising expense = Advertising expense amount Number of months = $ 930 3 = $ 310 (2) c

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Prepare the adjusting entries for Incorporation IP as on January 31.

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