Chapter 5, Problem 5.7E

(a)

To determine

Adjusting entries

Adjusting entries are the journal entries that are recorded at an end of an accounting period. It adjusts the income and expense account to comply with the accrual based accounting. This accounting system states that the revenues should be recognized when it is earned, and the expenses should be recognized when it is incurred, irrespective to cash received or paid for it.

Accounting rules for journal entries:

• To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
• To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.

Closing entries

Closing entries are those journal entries which are passed to transfer the balances of temporary accounts to the permanent accounts. These are passed at the end of the accounting period, to transfer the final balance.

Rules for closing entries:

• Debit the account: All temporary accounts with credit balances.
• Credit the account: All temporary accounts with debit balances

To record: Adjusting entry for inventory of T Company.

(b)

To determine

To record: Closing entries in the books of T Company.