Sales -- Accounts receivables
Purchases or inventory – Accounts payable
Prepaid rent – Rent Expense
Supplies -- Supplies expense.
Interest receivable – Interest income
Interest expense – interest payable
Unearned rent – rent revenue
Tax expense – taxes payable
Depreciation expense – accumulated depreciation
Bad debts expense – Allowance for bad debts.
There are three types of adjustments: accruals, deferrals, and allocations.
Accruals are the accumulation of something, such as revenue or an expense, that occurs as a result of the passage of time, but for which an entry is not normally made because the cash will be paid or received later. For example, A company may have bond investments or notes receivable that earn interest, but the interest is not recorded unless it is received. If interest has been earned by the end of the period which has accrued (accumulated) but not yet received and recorded, an adjusting entry is needed to record the interest income and debit the interest receivable. Similarly, workers may be paid weekly every Friday, but the accounting period ends on Tuesday. A certain amount of wages has accrued but not yet paid, so the adjustment is to record the wages payable as a liability and debit wage expense which has been incurred for two days.
Deferrals are somewhat more complicated because they are initially recorded, but the passage of time changes the situation so the record is no longer valid. There is more than one way to record the receipt or payment of cash for certain revenues and expenses, and the adjusting entry depends on how the original record was previously made. buying of supplies is an example.
1. Recorded as asset.
Assets are economic resources that provide future benefits. When you buy supplies, you actually receive physical goods, put them on a shelf or in bins, and they are available to be used later when needed. So supplies are assets. They are something you have and own. For example copy paper, paper clips, printer ink cartridges, nails, paint. When you use up an asset you incur an expense, i.e. a reduction of owner's equity because the asset no longer exists. It has provided the service you needed. Let's look at an example, This month you started with $100 of supplies on hand. You bought $300 more of supplies and debited the supplies asset account. Whenever you need to use some supplies, you take them out of the bin or supply cabinet and use them. At the end of the month you look over your supplies and you find that you have only $80 of supplies left. What does that mean? Obviously, you must have used up $320 of supplies. So to prepare financial statements you have to adjust the supplies asset account. What is the balance of the account? $400. What should be the balance at the end of the month: $80. So to adjust the account, you have to credit it $320. What do you debit? Supplies expense. That's fairly easy to see when you think about it logically.
2. Supplies recorded as expenses.
Another company is constantly buying supplies and using them up as the need occurs. Let's say it has no supplies at the beginning of the month. You buy $600 of supplies and you decide that since these supplies will soon be used up, you may as well record the entire amount as an expense. You debit supplies expense $600. Later you buy some more supplies for $200 and again record them as an expense. Now at the end of the month you look at your supplies expense account and see that it has a debit of $800. But the supplies you have on hand amount to only $100 dollars. What is wrong here? You have $100 of supplies, clearly an asset, and your account records tell you that you used up supplies of $800. So what is wrong? Nothing really. Your accounts just need adjusting to express the reality of the situation. The supplies expense account says that you used up $800 of supplies but you know that you used up less because you have $100 of supplies still on hand. How do you adjust the expense account. Clearly you have to record a credit of $100 to bring the account to its proper balance. What do you debit? See how simple it is to make adjustments. Every adjusting entry involves one temporary account and one permanent account. And the accounts are always related.
Finally, allocations are adjustments that must be estimated and cannot be calculated precisely. Examples are the recording of depreciation expense, and the recording of bad debts expense.
Office supplies, an asset is recorded at $540, but only $95 of supplies are on hand. What happened to the rest? They were used up. Using up of assets is an expense.. What is in the account? A debit of 540. What should be in the account? A debit of 95. There is only one way to adjust the account: You have to credit it the amount that will bring it to the correct balance when posted. But you have to make an equal debit entry to balance the journal. What account could that be? And should it be a permanent or temporary account.
You see it is not so hard after all.
And surely you know how to post a journal entry to the ledger.
how would i do this:
i need help with an adjusting entry
1) Physical inventories as of June 30, 20XX are as followed:
Office Supplies $95
Store Supplies $360
This is the balance on the account before the adjusting entries:
Office supplies Debit of $540
Store supplies Debit of $2328
how would i record this as a adjusting entry in both the journal and ledger
