Chapter 3, Problem 3.5EX

To determine

Adjusting entries

Adjusting entries are those entries which are made at the end of the accounting period, to record the revenues in the period of which they have been earned and to record the expenses in the period of which have been incurred, as well as to update all the balances of assets and liabilities accounts on the balance sheet, and to ascertain accurate amount of net income (loss) on the income statement to maintain the records according to the accrual basis principle.

Accounting rules for journal entries:

• To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.

• To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.

To indicate: The item incorrectly stated because of the error on the balance sheet and income statement.