3. Determine which of the following events would require adjustment (i.e. an adj

Question

3. Determine which of the following events would require adjustment (i.e. an adjusting entry) at the end of the current one month period. Do not attempt to determine the amount of the adjustment, but DO specify the accounts that would require adjustment and if they would be debited or credited. a. Paid rent for one year in advance. b. Purchased a new delivery vehicle. c. Made a cash sale to a customer. d. Made a sale to a customer on account. Purchased $900 of office supplies on open account. Received $1,000 cash from a customer for services to be performed four months from now. Paid $90 cash for gas to put in the delivery vehicles. Borrowed $1,200 cash from the bank at a 10% interest rate, payments due on the 15 of each month. e. f. g. h.

Explanation / Answer

Adjusting entries :

Adjusting entries are journal entries made at the end of a period to currect accounts before the financial statements are prepared. Adjusting entries are most commonly used in accordance with the matching principle to match revenue and expenses in the period in which they occur. Adjusting entries used for dividing income and expenses into the amounts that were used in the current period and deferring the amounts that are going to be used in future periods

a. Paid rent for one year in advance - require adjustment entry for this event at the end of current month to book rent for current month and recognized prepaid rent for upcoming months

b. Purchase new delivery vehicle - Not require adjustment entries as adjustment entries are require to divide revenue expenditure with referance to their period. For capital expenditure not require the same as this expenditure are booked as and when they occure. To recongnized depreciation on this asset for the current month adjustment entries are require

c. Made cash sale to a customer - Not require adjustment entries as event are completed in current month only and revenue will recognised fully in current month only.

d. Made a sale to customer on account - Require adjustment entries to recognizd the Account receivable at end of current month

e. Purchase $900 of office supplies on open account .- Require adjustment entries to recognizd the Account payable at end of current month

f. Received $ 1,000 cash from customer for service to be performed four months from now - Require adjustment entries to recognizd the Advance received from customer at end of current month

g. Paid $ 90 cash for gas to put in delivery vehivles - Not require adjustment entries as event are completed in current month only and revenue will recognised fully in current month only.

h Borreowed $1,200 cash from bank - Require adjustmen entries to book current month interest expences and loan amount to be payable at the end of month

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