
(1)
Adjusting entries indicates those entries, which are passed in the books of accounts at the end of one accounting period. These entries are passed in the books of accounts as per the revenue recognition principle and the expenses recognition principle to adjust the revenue, and the expenses of a business in the period of their occurrence.
Adjusted
Adjusted trial balance is a trial balance prepared at the end of a financial period, after all the adjusting entries are journalized and posted. It is prepared to prove the equality of the total debit and credit balances.
Rule of Debit and Credit:
Debit - Increase in all assets, expenses & dividends, and decrease in all liabilities and
Credit - Increase in all liabilities and stockholders’ equity, and decrease in all assets & expenses.
To record: The adjusting entries on August 31, 2016 of Company R.
(1)

Explanation of Solution
a. The following entry shows the adjusting entry for insurance expense on August 31.
Date | Description | Post. Ref |
Debit ($) |
Credit ($) |
August 31, 2016 | Insurance expense (1) | 1,200 | ||
Prepaid insurance | 1,200 | |||
(To record the insurance expense incurred at the end of the year) |
Table (1)
The impact on the
Working note:
Calculate the value of insurance expense at the end of the year
- Insurance expense is a component of owners’ equity, and decreased it by $1,200 hence debit the insurance expense for $1,200.
- Prepaid insurance is an asset, and it decreases the value of asset by $1,200, hence credit the prepaid insurance for $1,200.
b. The following entry shows the adjusting entry for supplies on August 31.
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
August 31, 2016 | Supplies Expense (2) | 1,500 | |
Supplies | 1,500 | ||
(To record the supplies expense at the end of the accounting period) |
Table (2)
The impact on the accounting equation for the above referred adjusting entry is as follows:
- Supplies expense is a component of stockholders’ equity, and it decreased the stockholders’ equity by $1,500. So debit supplies expense by $1,500.
- Supplies are an asset for the business, and it is decreased by $1,500. So credit supplies by $1,500.
Working Note:
Calculation of Supplies expense for the accounting period
c. The adjusting entry for recording
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
August 31, 2016 | Depreciation expense - Building | 7,500 | |
| 7,500 | ||
(To record the depreciation on building for the current year.) |
Table (3)
The impact on the accounting equation for the above referred adjusting entry is as follows:
- Depreciation expense is component of stockholders’ equity and decreased it, so debit depreciation expense by $7,500.
- Accumulated depreciation is a contra asset account, and it decreases the asset value by $7,500. So credit accumulated depreciation by $7,500.
d. The adjusting entry for recording depreciation is as follows:
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
August 31, 2016 | Depreciation expense-Equipment | 8,600 | |
Accumulated Depreciation- Equipment | 8,600 | ||
(To record the depreciation on equipment for the current year.) |
Table (4)
The impact on the accounting equation for the above referred adjusting entry is as follows:
- Depreciation expense is component of stockholders’ equity and decreased it, so debit depreciation expense by $8,600.
- Accumulated depreciation is a contra asset account, and it decreases the asset value by $8,600. So credit accumulated depreciation by $8,600.
e. The following entry shows the adjusting entry for Unearned Rent on August 31.
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
August 31, 2016 | Unearned Rent | 5,200 | |
Rent revenue (3) | 5,200 | ||
(To record the Rent revenue from services at the end of the accounting period.) |
Table (5)
The impact on the accounting equation for the above referred adjusting entry is as follows:
- Unearned Rent is a liability, and it is decreased by $5,200. So debit unearned rent by $5,200.
- Rent revenue is a component of Stockholders’ equity, and it is increased by $5,200. So credit rent revenue by $5,200.
Working Notes:
Calculate the rent revenue for the accounting period
f. The following entry shows the adjusting entry for Salary and wages expense on August 31.
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
August 31, 2016 | Salary and wages expense | 3,200 | |
Salary and Wages Payable | 3,200 | ||
(To record the salary and wages accrued but not paid at the end of the accounting period.) |
Table (6)
The impact on the accounting equation for the above referred adjusting entry is as follows:
- Salary and wages expense is a component of Stockholders ‘equity, and it decreased it by $3,200. So debit wage expense by $3,200.
- Salary and wages payable is a liability, and it is increased by $3,200. So credit Salary and wages payable by $3,200.
g. The following entry shows the adjusting entry for accrued fees unearned on August 31.
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
August 31, 2016 | Accounts Receivable | 11,330 | |
Fees earned | 11,330 | ||
(To record the accounts receivable at the end of the year.) |
Table (7)
The impact on the accounting equation for the above referred adjusting entry is as follows:
- Accounts Receivable is an asset, and it is increased by $11,330. So debit Accounts receivable by $11,330.
- Fees earned are component of stockholders’ equity, and it increased it by $11,330. So credit fees earned by $11,330.
(2)
To prepare: The adjusted trial balance of the Company R
(2)

Explanation of Solution
The adjusted trial balance of the Company R is shown below:
Company R | ||
Trial Balance after Adjustments | ||
August 31, 2016 | ||
Particulars | Debit $ | Credit $ |
Cash | 7,500 | |
49,730 | ||
Prepaid Insurance | 6,000 | |
Supplies | 480 | |
Land | 112,500 | |
Building | 150,250 | |
Accumulated Depreciation - Building (3) | 95,050 | |
Equipment | 135,300 | |
Accumulated Depreciation – Equipment (4) | 102,1000 | |
Accounts Payable | 12,150 | |
Unearned Rent | 1,550 | |
Salaries and Wages Payable | 3,200 | |
Capital | 221,000 | |
Drawing | 15,000 | |
Fees earned | 335,930 | |
Rent Revenue (5) | 5,200 | |
Salaries and Wages Expense | 196,170 | |
Utilities Expense | 42,375 | |
Advertising Expense | 22,800 | |
Repairs Expense | 17,250 | |
Depreciation Expense - building | 7,500 | |
Depreciation Expense - equipment | 4,150 | |
Insurance Expense (1) | 1,200 | |
Supplies Expense (2) | 1,500 | |
Miscellaneous Expense | 6,075 | |
Total | 776,180 | 776,180 |
Table (8)
Working Notes:
1. Calculate the value of prepaid insurance at the end of the year
2. Calculate the supplies for the accounting period
3. Calculate the value of building
4. Calculate the value of equipment
5. Calculation of accounts receivable
Hence, the total of debit and credit column of the adjusted trial balance matches and they have a total balance of $776,180.
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Chapter 3 Solutions
Working Papers, Chapters 1-17 for Warren/Reeve/Duchac's Accounting, 26th and Financial Accounting, 14th
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