1

The Adjusting Process

3

Student Version

1-23-22

Describe the nature of the adjusting process.

1

3-2

1-33-33

Prepaid expenses are the advance payment of future expenses and are recorded as assets when cash is paid.

1

Types of Accounts Requiring Adjustment

1-43-44

Unearned revenues are the advance receipt of future revenues and are recorded as liabilities when cash is received.

Types of Accounts Requiring Adjustment

1

1-53-55

Accrued revenues are unrecorded revenues that have been earned and for which cash has yet to be received.

1

Types of Accounts Requiring Adjustment

1-63-66

Accrued expenses are unrecorded expenses that have been incurred and for which cash has not been paid.

1

Types of Accounts Requiring Adjustment

1-73-77

Journalize entries for accounts requiring adjustment.

2

3-7

1-83-8

Summary of Basic AdjustmentsSummary of Basic AdjustmentsSummary of Basic AdjustmentsSummary of Basic Adjustments

1-93-99

NetSolutions’ Supplies account has a balance of $2,000 in the unadjusted trial balance. Some of these supplies have been used. On December 31, a count reveals that $760 of supplies are on hand.

Prepaid Expenses

2

Supplies (balance on trial balance) $2,000Supplies on hand, December 31 – 760Supplies used $1,240

1-103-1010

Dec. 31 1,240Dec. 31 1,240

SuppliesBal. 2,000

Supplies ExpenseBal. 800

14 55

2,040760

2

1-113-11

Effect of Omitting AdjustmentEffect of Omitting AdjustmentEffect of Omitting AdjustmentEffect of Omitting Adjustment

1-123-1212

The debit balance of $2,400 in NetSolutions’ Prepaid Insurance account represents the December 1 prepayment of insurance for 12 months.

Prepaid Expenses

2

1-133-1313

Dec. 31 200Prepaid InsuranceBal.

2,400

Insurance Expense15 56

2,200

2

Dec. 31 200

1-143-1414

The December 31 unadjusted trial balance of NetSolutions indicates a balance in the unearned rent account of $360.

Unearned Revenues

2

1-153-1515

Dec. 31

120

Unearned RentBal. 360

Rent Revenue23 42

2

1-163-1616

Rent Revenue 42Dec. 31

120

Unearned RentBal. 360

23

240Bal.

Dec. 31

120

2

1-173-17

Effect of Omitting AdjustmentEffect of Omitting AdjustmentEffect of Omitting AdjustmentEffect of Omitting Adjustment

1-183-1818

NetSolutions signed an agreement with Danker Co. on December 15 to provide services at $20 per hour. As of December 31, NetSolutions had provided 25 hours of assistance.

Accrued Revenues

2

1-193-1919

Dec. 31 500

Accounts ReceivableBal. 16,340

Fees Earned12 41Bal. 2,220

2,720Bal.

2

1-203-2020

Dec. 31 500Dec. 31 500

Accounts ReceivableBal. 16,340

Fees Earned12 41Bal. 2,220

2,720Bal. 16,840Bal.

2

1-213-21

Effect of Omitting AdjustmentEffect of Omitting AdjustmentEffect of Omitting AdjustmentEffect of Omitting Adjustment

1-223-2222

NetSolutions pays it employees biweekly. During December, NetSolutions paid wages of $950 on December 13 and $1,200 on December 27. As of December 31, NetSolutions owes $250 of wages to employees for Monday and Tuesday.

Accrued Expenses

2

1-233-2323

Dec. 31 250

Wages Payable Bal.

4,275

Wages Expense22 51

Bal. 4,525

2

1-243-2424

Dec. 31 250Dec. 31 250

Wages Payable Bal.

4,275

Wages Expense22 51

Bal. 4,525

2

1-253-2525

The journal entry for the payment of wages on January 10 is shown below.

2

After posting

1-263-26

Effect of Omitting AdjustmentEffect of Omitting AdjustmentEffect of Omitting AdjustmentEffect of Omitting Adjustment

1-273-2727

NetSolutions estimates the depreciation on its office equipment to be $50 for the month of December.

2

1-283-2828

Dec. 31 50Depreciation Expense Accum. Depr.—Office Equip. 1953

2

1-293-2929

Dec. 31 50Depreciation Expense

Dec. 31 50Accum. Depr.—Office Equip. 1953

2

1-303-3030

NetSolutions’ balance sheet would show office equipment at cost, less accumulated depreciation.

Office equipment $1,800 Less accumulated depreciation 50 $1,750

Book value

2

1-313-3131

Summarize the adjustment process.

3

3-26

1-323-3232

3

(continued)

Exhibit 7 Adjusting Entries—NetSolutions

1-333-3333

3

.

Exhibit 7 Adjusting Entries—NetSolutions (continued)

1-343-3434

Prepare an adjusted trial balance.

4

3-29

1-353-3535

4

Exhibit 9 Adjusted Trial Balance—NetSolutions

1-363-3636