Chapter 4-

E4-12
Adjusting Entries
Adjusting entries are the journal entries which are recorded at the end of
the accounting period to
correct or adjust the income and expense accounts in conformity with the
accrual principle of accounting.
Prepare adjusting entries for AL Lumber Supply at July 31, 2017.
Prepare adjusting entry for accrued interest revenue.

Explanation:
• Interest receivables are an asset account, and it is increased by $100.
Hence, it is debited.
• Interest Revenue is revenue for the company and it increases the
stockholders’ equity by $100.
Hence it is credited.

Working note:
Calculate the amount of interest receivable on notes.

Prepare adjusting entry to record the supplies used during the month.

Explanation:
• Supplies expense decreases the value of stockholders’ equity by $5,400.
Therefore, debit
supplies expense account with $5,400.
• Supplies are an asset. There is a decrease in asset by $$5,400.
Therefore, credit supplies
account with $$5,400.
Working note:
Calculate the amount of supplies used / expenses.

Prepare adjusting entry to record the rent expense of the month of July.

Explanation:
• Rent expense decreases the value of stockholders’ equity by $900.
Therefore, debit Rent
expense account with $900.
• Prepaid Rent is an asset and it is decreased by $900. Therefore, credit
prepaid Rent account
with $900.

Working note:
Calculate the amount of rent expenses for the month of July.

Prepare adjusting entry to record the accrued salaries and wages.

Explanation:
• Salaries and wages expense decreases the value of stockholders’ equity
by $3,100. Therefore
debit salaries and wages expense account with $3,100.
• Salaries and wages payable is a liability account. There is an increase in
liabilities by $3,100.
Therefore credit salaries and wages payable account with $3,100.

Prepare adjusting entry to record the depreciation expenses for the month
of July.

Explanation:
• Depreciation expense decreases the value of stockholders’ equity by
$500.Therefore debit
depreciation expense account with $500.
• Accumulated depreciation is a contra-asset account. There is a decrease
in assets by $500.
Therefore credit accumulated depreciation account with $500.
Working note:
Calculate the amount of depreciation expenses for the month of July.

Prepare adjusting entry to record the services rendered related to

unearned service
revenue.

Explanation:
• Unearned service revenue is a liability and there is decrease in liabilities
by $4,700. Therefore
debit unearned service revenue account with $4, 700.
• Service revenue is a revenue account. There is an increase in equity by
$4, 700. Therefore
credit service revenue account with $4, 700.
Prepare adjusting entry to record the maintenance and repairs expenses
for the month of
July.
Explanation:
• Maintenance and Repairs expense decreases the value of stockholders’
equity by
$2,300.Therefore debit depreciation expense account with $2,300.
• Accounts Payable is a liability account, and it is increased by $2,300.
Hence it is credited.

Chapter 4- E4-18
Adjusting entries
Adjusting entries are the journal entries which are recorded at the end of
the accounting period to
correct or adjust the income and expense accounts in conformity with the
accrual principle of
accounting.
(a)
Prepare the adjusting entries at December 31, 2017:
Working notes:
Calculate an amount of salaries and wages expense:

Calculate an amount of interest expense:

(b)
Prepare the journal entries to record the cash transactions:
Chapter 4- E4-20
Closing Entry
Closing entry: The journal entries that are recorded to transfer the
revenues and expenses to
clearing or temporary accounts, and which are again transferred to
retained earnings account,
thereby, reducing the balance of these temporary accounts to zero are
known as closing entries.
(a)
Closing entry of revenue account:

Explanation:
• Service revenue is revenue and closed. Therefore, debit service revenue
account with
$190,000.
• Income summary is a component of stockholders’ equity and increased
by $190,000.
Therefore, credit income summary account with $190,000.

Closing entry of expense accounts:

Explanation:
• Income summary is a component of stockholders’ equity and decreased
by $109,300.
Therefore, debit income summary account with $109,300.
• All expense accounts are closed. Therefore, they are credited with their
respective amounts.

Closing entry of income summary account:

Explanation:
• Income summary is a component of stockholders’ equity and decreased
by $80,700. Therefore,
debit income summary account with $80,700.
• Retained earnings are a component of stockholders’ equity and
increased by $80,700.
Therefore, credit Retained earnings account with $80,700.

Working note:

Calculate the amount of income summary:

Closing entry of dividends account:

Explanation:
• Retained earnings are a component of stockholders’ equity and
decreased by $26,300.
Therefore, debit Retained earnings account with $26,300.
• Dividends are a component of stockholders’ equity and increased by
$26,300. Therefore, credit
dividends account with $26,300.

(b)
Determine the balance in retained earnings:

Hence, the post closing balance in retained earnings is $54 400.