3

Adjusting Entries
1 On January 1, Reggie Inc. purchased equipment costing $24,000. The equipment
will be used for four years and has $0 salvage value. (Depreciation Expense
represents the amount of the equipment used during the year.)

Debit Credit
Dec. 31 Depreciation Expense $6,000
Accumulated Depreciation-Equip $6,000
Calculation: 24,000 ÷ 4 = $6,000
2 On February 1, the company borrowed $100,000 from a bank by signing a three
year, 6% note. Interest and principal are due at maturity.
Debit Credit
Dec. 31
Interest Expense $5,500
Interest Payable $5,500
Calculation: 100,000 x .06 x (11/12) = $5,500
3 On May 1, the company loaned cash to a customer who signs a 10 month, 18%
note, $5,000. Interest and principal are due at maturity.
Debit Credit
Dec. 31
Interest Receivable $600
Interest Revenue $600
Calculation: 5,000 x .18 x (8/12) = $600
4 At the beginning of the year, there were no supplies on hand. On October 6, the
company purchased supplies costing $2,300 and debited the supplies account.
Supplies remaining at year end are $1,000.

Debit Credit
Dec. 31
Supplies expense $1,300
Supplies $1,300
Calculation: 2,300 - 1,000 = $1,300
5 On Nov 1, the company paid $5,000 for a 5 month insurance policy. The account
Prepaid Insurance was debited on Nov 1.
Debit Credit
Dec. 31
Insurance Expense $2,000
Prepaid Insurance $2,000
Calculation: 5,000 ÷ 5 x 2 = $2,000
6 On December 1, the company paid one year of rent in advance. The account
Prepaid Rent was debited on December 1 in the amount of $6,000.
Debit Credit
Dec. 31
Rent Expense $500
Prepaid Rent $500
Calculation: 6,000 ÷ 12 x 1 = $500
7 On December 1, the company received $4,000 cash for services to be provided
equally over the next four months. The account Deferred Revenue was credited on
December 1.
Debit Credit
Dec. 31
Deferred Revenue $1,000
Service Revenue $1,000
Calculation: 4,000 ÷ 4 x 1 = $1,000
 4

8 On Dec 31, received a bill for utilities used during the month,
$2,000. The utility expense has not been paid or recorded.
Debit Credit
Dec. 31 Utilities Expense $2,000
Accounts Payable $2,000

9 Provided services on account during the month in the

amount of $10,000. The company has not recorded the
services provided.

Debit Credit
Dec. 31 Accounts Receivables $10,000
Service Revenue $10,000

10 Unpaid Salaries for employees who worked during December,

$ 15,000. The salary expense has not been recorded.
Debit Credit
Dec. 31 Salary Expense $15,000
Salary Payable $15,000

11 Unpaid Taxes for the year are $ 3,000. The tax expense has not been recorded.

Debit Credit
Dec. 31 Tax Expense $3,000
Taxes Payable $3,000

Accrual-Basis Accounting
Revenue recognition
Expense recognition
GAAP (Generally Accepted
Accounting Principles
Accrual Basis
Revenue is recorded when goods and
services are delivered to customers
Expenses are recorded in the
accounting period costs are USED to
help produce revenues
GAAP
Cash Basis
Revenue is recorded when cash
is received from customers
Expenses are recorded when
cash is paid for an item.
Not GAAP

The difference between accrual-basis accounting and cash-basis accounting is timing—when

recording revenues and expenses.
We will use accrual basis accounting in this class.