Discussion for seminar 2 questions

a. General Journal
(Adjusting Entries)
Dec.
2011
1
31 Accounts Receivable
Client Revenue Earned
To record accrued but uncollected
revenue.
2

Debt

Credit

6,400

Comment [ZhengJuan1]: This is a

6,400

31 Unearned Client Revenue

Client Revenue Earned
To convert previously unearned
revenue to earned revenue.

6,600

transaction rather than adjusting entry.

Comment [ZhengJuan2]: This is an

6,600

adjusting entry. The purpose of adjusting

entry is to adjust/recognize revenue or
expense into the period they are really
earned or incurred.

31 Insurance Expense
Unexpired Insurance
To record Dec. insurance expense
($36,000/ 12mo.=3,000)

3,000

31 Advertising Expense
Prepaid Advertising
To record Dec. advertising
expense.

1,100

31 Climbing Supplies Expense

Climbing Supplies
To record climbing supplies used
in Dec. ($4,900-2,000=2,900)

2,900

Remember, an adjusting entry must involve

3,000

1) revenue/expense, and 2) no cash.

Comment [ZhengJuan3]: You should

include all your workings in the explanation

31

to a journal entry.

1,100

2,900

Depreciation Expenses: Climbing

Equip
Accumulated Dep.: Climbing
Equip
To record Dec. depreciation
expense ($57,600/ 48mo.=1,200).

1,200
1,200

31 Interest Expense
Interest Payable
To record interest accrued in Dec
($10,000 * 9% *1/12=75)

75
75

Comment [ZhengJuan4]: The interest rate

in accounting context normally refers to
annual interest. Please be careful when read
case materials to find out whether it has
specific instruction for interest rate.

31 Salaries Expense
Salaries Payable

3,100
3,100

To record salaries accrued in Dec.

31 Income Taxes Expense

Income Taxes Payable
To record income taxes accrued in
Dec.

1,250
1,250
Comment [ZhengJuan5]: Income tax
expense is determined by Taxable income *

To prepare an adjusted trial balance, we should 1) list all accounts, 2) copy the
unadjusted balance firstly, 3) map every adjusting entry into the accounts involved,
and 4) arrive at the updated balance (be careful about the directions (debt or credit) of
adjustments)
Besides, make sure you know how to prepare a trial balance.

Account

Cash

Unadjusted TB
Debit

Credit

Debit

Credit

13,900

Adjusted TB
Debit

Credit

13,900

Accounts
receivable

Adjustments

78,000

6,400

84,400

Unexpired
insurance

18,000

3,000

15,000

2,200

1,100

1,100

4,900

2,900

2,000

Prepaid
advertising
Climbing
supplies
Climbing
equipment

57,600

57,600

Accumulate
d
depreciatio

38,400

n: climbing

1,200

39,600

equipment
Accounts
payable

1,250

1,250

Salaries
payable

Note

3,100

10,000

payable

3,100

10,000

Interest
payable

150

7
2

75

225

Tax rate.

Income
taxes

1,200

payable

1,250

2,450

Unearned
client

9,600

revenue
Capital

6,600

3,000

17,000

stock
Retained

17,000

62,400

earnings

62,400

Client
revenue

188,000

earned
Advertising
expense

7,400

Insurance
expense

33,000

13,000

201,000

1,100

8,500

3,000

36,000

Rent
expense

16,500

16,500

Climbing
supplies
expense

8,400

2,900

11,300

Repairs
expense

4,800

4,800

Depreciatio
n expense:
Climbing

13,200

1,200

14,400

3,100

60,300

75

225

1,250

14,000

equipment
Salaries
expense

57,200

Interest
expense

150

Income
taxes
expense

12,750
328,000

328,000

25,625

25,625

340,025

340,025

Comment [ZhengJuan6]: If total of debt

total of credit, it means you commit some

Net income = Total of Revenue Total of Expenses= 34,975

You can simply find out the figures for revenue and expenses in the adjusted trial
balance.

errors. However, if total of debt=total of

credit, does it promise that your trial
balance is error free? The answer can be
found in your text book. Please think over it

Error

Total
Net
Total
Total
Owners
Expenses Income Assets Liabilities Equity

Total Revenue

yourself.

Recorded a dividend as an expense reported in the income statement

Dr Dividend
Correct (-OE)
Cr Cash (-A)
Dr Expense (+E)
Wrong (-OE)
NE
O
U
NE
NE
Cr Cash(-A)

Comment [ZhengJuan7]: Dividend is not

an expense. It usually has debit balance
(debit for its increase, and credit for its
decrease).

NE

correct and wrong entries, we find the

difference is an overstatement in expense.

Recorded the payment of an account payable as a debit to accounts payable and a

credit to an expense account
Dr Accounts
Correct payable (-L)
Cr Cash (-A)
Dr Accounts
payable (-L)
Wrong
NE
U
O
O
NE
O
Cr Expense
(-E)(+OE)
b

Comment [ZhengJuan8]: Compare the

Comment [ZhengJuan9]: Effects on other

parts can be found by:
Total revenue total expense = Net income
Total assets = total liability owners equity

Failed to record depreciation expense

Dr Depreciation
Correct (+E)(-OE)
Cr acc depn (-A)
Wrong

No entry

NE

NE

Recorded the sale of capital stock as a debit to cash and a credit to retained earnings
Dr Cash(+A)
Correct Cr Captial
stock(+OE)
Dr Cash(+A)
Wrong Cr Retained
NE
NE
NE
NE
NE
NE
earnings(+OE)

Comment [ZhengJuan10]: Sell capital

stock = issue capital stock. It means raising
money from owners. The firm issue more
capital, so it records an increase in Capital
stock. Meanwhile, it receives money from
owners who buys these capital stock, so it
records an increase in cash.
Comment [ZhengJuan11]:

Recorded the receipt of a customer deposit as a debit to cash and a credit to fees
e
earned
Dr Cash (+A)
Correct Cr Unearned
revenue(+L)
Dr Cash (+A)
Wrong Cr Fees earned
O
NE
O
NE
U
O
(+R)(+OE)

OE=capital stock + retained earnings

=Capital stock + Net income
Dividend
=Capital stock + Revenue Expense
Dividend
!Attention: Please make sure you are very
clear about the relationships between
elements of owners equity. Based on these
relationships, you can easily memorize the

Failed to record expired portion of an issuance policy

4

debt/credit meanings for these accounts.

Dr Insurance
Expense(+E)(-OE)
Correct
Cr unexpired
Insurance (-A)
Wrong

No entry

NE

NE

Failed to record accrued interest earned on an outstanding note receivable

Dr Interest
receivable (+A)
Correct Cr Interest
income
(+R)(+OE)
Wrong No entry
U
NE
U
U
NE