Problem 5.

8 Adjusting entries, posting to T accounts, reversing

entries and entries in subsequent period

Selected accounts taken from the general ledger of Hampsteads showed the following balances at 31
December.

Prepaid Insurance Insurance Expense

31/12 Bal. 2 750 31/12 Bal. 0

Interest Receivable Interest Revenue

31/12 Bal 0 31/12 Bal 6 720

Wages Expense Wages Payable

31/12 Bal 124 400 31/12 Bal 0

Required
A. Prepare adjusting entries for the accounts based on the following data that are not yet
recorded.
1. Insurance expired during the year, $1400.
2. Wages earned by employees but not paid at year-end, $2280.
3. Interest accrued but not yet received on bills receivable, $580.
B. Open T accounts for each of the accounts listed. Enter the 31 December balances and the
adjusting entries.
C. Enter in the appropriate accounts the effects of the closing entries that would be made at
year-end.
D. Complete the following table:

Account Balance Effects of Balance Effects of Balance

before adjusting after closing after
adjustment entries adjustments entries closing
entries
Prepaid Insurance $2 750 – $1 400 $1 350 0 $1 350
Insurance Expense
Interest Receivable
Interest Revenue
Wages Payable
Wages Expense

E. Hampsteads follows the practice of making reversing entries. Prepare the reversing entries
that would be made on 1 January of the next period.
F. Record the payment of $2940 in weekly wages on 3 January and the collection of $740 in
interest on 18 January. What are the balances in the Wages Expense and Interest Revenue
after these entries are posted?
G. Prepare the two entries given in requirement F assuming the company did not prepare
reversing entries.
A.
General Journal
Adjusting entries
1. Insurance Expense 1 400
Prepaid Insurance 1 400
Expired insurance.

2. Wages Expense 2 280

Wages Payable 2 280
Wages accrued

3. Interest Receivable 580

Interest Revenue 580
Interest revenue accrued.

B. & C.

Prepaid Insurance
31/12 Balance $2 750 (1) Insurance expense 1 400

Insurance Expense
(1) Prepd insurance 1 400 Closing entry 1 400

Interest Receivable
(3) Interest revenue $580

Interest Revenue
31/12 Balance $6 720
Closing entry 7 300 (3) Interest receivable 580
$7 300 $7 300

Wages Payable
(2) Wages expense $2 280

Wages Expense
31/12 Balance $124 400
(2) Wages payable 2 280 Closing entry $126 680
$126 680 $126 680
D.

Account Balance Effects of Balance Effects of Balance

before adjusting after closing after
adjustment entries adjustments entries closing
entries
Prepaid Insurance $2 750 – $1 400 $1 350 $0 $1 350
Insurance Expense 0 + 1 400 1 400 – 1 400 0
Interest Receivable 0 +580 580 0 580
Interest Revenue 6 720 +580 7 300 – 7 300 0
Wages Payable 0 + 2 280 2 280 0 2 280
Wages Expense 124 400 + 2 280 126 680 – 126 680 0

E.
General Journal
Reversing Entries

Wages Payable $2 280

Wages Expense $2 280
Reverse adjustment for wages accruals.

Interest Revenue 580

Interest Receivable 580
Reverse adjustment for interest accruals.

F.
General Journal

Jan. 3 Wages Expense $2 940

Cash at Bank $2 940
Payment of wages

Jan. 18 Cash at Bank 740

Interest Revenue 740
Receipt of interest

Interest Revenue Wages Expense

1/1 Rev. ent. 580 1/1 Begin. bal 0 1/1 Begin. bal 0 1/1 Rev. ent. 2 280
18/1 Cash at 740 3/1 Cash at 2 940
bank bank

Balance = $160 Cr Balance = $660 Dr

G.
General Journal

Jan. 3 Wages Expense $660

Wages Payable 2 280
Cash at Bank $2 940
Payment of wages.

Jan. 18 Cash at Bank 740

Interest Receivable 580
Interest Revenue 160
Receipt of interest.
Problem 5.14 Complete accounting cycle, running balance
ledgers

Browne Cleaning and Gardening Services commenced on 1 June 2017 when Lorne Browne
contributed $120 000 into a business bank account. Perhaps more thought could have been given to
the business name. The following transactions occurred in the month of June. Ignore GST.

June 1 Lorne signed a lease agreement to lease a suitable storage shed for a
monthly rental of $2600. Rent for 3 months was paid in advance. He also
hired an assistant to help him with cleaning and lawn mowing tasks. The
assistant was to be paid casual wages.
2 The business acquired suitable cleaning and gardening equipment for a
total cost of $40 320. A deposit of $8500 was paid immediately and the
balance was to be paid in 30 days. The equipment was expected to have
2 a useful life of 6 years.
Purchased a quantity of washing supplies for $1060 cash. Purchased
3 fuel and oil supplies for $1740 cash.
Signed a contract with Community Newspapers for 12 weeks of
advertisements in its weekly, free newspaper delivered to local homes.
6 The business paid $960 in advance for these advertisements.
Received cash of $180 from a grateful client whose house had been
cleaned by the business before the monthly rent inspection. Received
8 cash of $2800 for several lawns that had been mowed for clients during
the week.
Signed a contract with the local shopping centre to provide cleaning
13 services to its outside walls (including graffiti removal) for a monthly fee
of $3200. The shopping centre paid for 2 months’ services in advance.
14 Received cash of $3000 for lawn mowing services provided to clients
during the past week.
21 Paid the assistant casual wages of $1540 for services provided to the
business during the past fortnight.
Earned $1600 for cleaning services from clients and $2790 for lawn
mowing during the past week. All money was received in cash except for
28 one client for cleaning services, who arranged to pay the business $300
in 3 weeks’ time for services rendered.
28 Received in cash the sum of $1760 for cleaning services provided to
clients and $2530 for lawn mowing and gardening services provided
30 during the past week.
Paid the assistant $1670 for services provided to the business during the
past fortnight.
Lorne withdrew $4000 in cash from the business in order to pay for
essential provisions for his family.
Additional information
The accounting period closed on 30 June 2017, and the following additional data was available.
1. Wages owing to the assistant on 30 June amounted to $620.
2. A physical count showed that only $260 of washing supplies and $750 of fuel and oil supplies were
still on hand.
3. Four weeks of advertisements had appeared in the local community newspaper up to 30 June.
4. Cleaning services of $550 had been rendered to clients on 29 June but the invoice to bill these
clients had not been prepared.
5. The business had provided cleaning services to its shopping centre client for 3 weeks of the first
 month (assumed to be 4 weeks long).

Required
A. Prepare journal entries to record the June 2017 transactions for Browne Cleaning and
Gardening Services and post these journal entries to suitable running balance ledger
accounts. Provide appropriate account numbers and journal page numbers and record them
in post ref. columns.
B. Prepare an unadjusted trial balance as at 30 June 2017
C. Prepare adjusting entries and post them to the ledger accounts. Be careful to ensure that all
adjusting entries have been recorded. Explain the reasons for each adjusting entry that you
have made.
D. Prepare an adjusted trial balance.
E. Prepare closing entries and a post-closing trial balance
F. Prepare the income statement, the statement of changes in equity and the balance sheet as at
30 June 2017.
G. Prepare any suitable reversing entries on 1 July 2017 and post them to the accounts.

A.
General Journal Page 1
2017
Jun 1 Cash at Bank 1000 120 000
Lorne Browne, Capital 3000 120 000
Contribution of cash by owner

1 Prepaid Rent 1003 7 800

Cash at Bank 1000 7 800
Rent for 3 months paid in advance

2 Cleaning and Gardening Equipment 1010 40 320

Cash at Bank 1000 8 500
Accounts Payable 2000 31 820
Equipment purchased for cash deposit
and 30-day loan

2 Washing Supplies 1004 1 060

Fuel Supplies 1005 1 740
Cash at Bank 1000 2 800
Supplies purchased for cash

3 Prepaid Advertising 1006 960

Cash at Bank 1000 960
Advertising purchased in advance

General Journal Page 2

2017
June
6 Cash at Bank 1000 180
Cleaning Revenue 4000 180
Cleaning revenue received
 6 Cash at Bank 1000 2 800
Gardening Revenue 4001 2 800
Gardening revenue received

8 Cash at Bank 1000 6 400

Unearned Cleaning Revenue 2010 6 400
Cleaning revenue received in advance

13 Cash at Bank 1000 3 000

Gardening Revenue 4001 3 000
Gardening revenue received

14 Wages Expense 5000 1 540

Cash at Bank 1000 1 540
Casual wages paid

21 Cash at Bank 1000 1 300

Accounts Receivable 1001 300
Cleaning Revenue 4000 1 600
Cleaning revenue earned

21 Cash at Bank 1000 2 790

Gardening Revenue 4001 2 790
Gardening revenue received

28 Cash at Bank 1000 1 760

Cleaning Revenue 4000 1 760
Cleaning revenue received

28 Cash at Bank 1000 2 530

Gardening Revenue 4001 2 530
Gardening revenue received

28 Wages Expense 5000 1 670

Cash at Bank 1000 1 670
Casual wages paid

30 Lorne Browne, Drawings 3001 4 000

Cash at Bank 1100 4 000
Drawings by owner
 General Ledger

ACCOUNT: Cash at Bank Account No. 1000

Date Explanation Post Debit Credit Balance
Ref
2017
1 6 Lorne Browne, Capital G1 120 000 120 000
1 6 Prepaid Rent G1 7 800 112 200
2 6 Cleaning and Gardening G1 8 500 103 700
Equipment
2 6 Washing and Fuel Supplies G1 2 800 100 900
3 6 Prepaid Advertising G1 960 99 940
6 6 Cleaning Revenue G2 180 100 120
6 6 Gardening revenue G2 2 800 102 920
8 6 Unearned Cleaning Revenue G2 6 400 109 320
13 6 Gardening Revenue G2 3 000 112 320
14 6 Wages Expense G2 1 540 110 780
21 6 Cleaning Revenue G2 1 300 112 080
21 6 Gardening Revenue G2 2 790 114 870
28 6 Cleaning Revenue G2 1 760 116 630
28 6 Gardening Revenue G2 2 530 119 160
28 6 Wages Expense G2 1 670 117 490
30 6 Lorne Browne, Drawings G2 4 000 113 490

ACCOUNT: Accounts Receivable Account No. 1001

Date Explanation Post Debit Credit Balance
Ref
2017
21 6 Cleaning Revenue G2 300 300
30 6 Cleaning Revenue G3 550 850

ACCOUNT: Prepaid Rent Account No. 1003

Date Explanation Post Debit Credit Balance
Ref
2017
1 6 Cash at Bank G1 7 800 7 800
30 6 Rent Expense G3 2600 5200
ACCOUNT: Washing Supplies Account No. 1004
Date Explanation Post Debit Credit Balance
Ref
2017
2 6 Cash at Bank G1 1 060 1 060
30 6 Washing Supplies Used G3 800 260

ACCOUNT: Fuel Supplies Account No. 1005

Date Explanation Post Debit Credit Balance
Ref
2017
2 6 Cash at Bank G1 1 740 1 740
30 6 Fuel Supplies Used G3 990 750

ACCOUNT: Prepaid Advertising Account No. 1006

Date Explanation Post Debit Credit Balance
Ref
2017
3 6 Cash at Bank G1 960 960
30 6 Advertising Expense G3 320 640

ACCOUNT: Cleaning and Gardening Account No. 1010

Equipment
Date Explanation Post Debit Credit Balance
Ref
2017
2 6 Cash at Bank and Accounts G1 40 320 40 320
Payable

ACCOUNT: Accumulated Depreciation Account No. 1011

Date Explanation Post Debit Credit Balance
Ref
2017
30 6 Depreciation Expense G3 560 560
ACCOUNT: Accounts Payable Account No. 2000
Date Explanation Post Debit Credit Balance
Ref
2017
2 6 Cleaning and Gardening G1 31 820 31 820
Equipment

ACCOUNT: Unearned Cleaning Revenue Account No. 2001

Date Explanation Post Debit Credit Balance
Ref
2017
8 6 Cash at Bank G2 6 400 6 400
30 6 Cleaning Revenue G3 2 400 4 000

ACCOUNT: Wages Payable Account No. 2002

Date Explanation Post Debit Credit Balance
Ref
2017
30 6 Wages Expense G3 620 620
1 7 Wages Expense (reversing) G5 620 —

ACCOUNT: Lorne Browne, Capital Account No. 3000

Date Explanation Post Debit Credit Balance
Ref
2017
1 6 Cash at Bank G1 120 000 120 000
30 6 Profit or Loss Summary G4 8 510 128 510
30 6 Lorne Browne, Drawings G4 4 000 124 510

ACCOUNT: Lorne Browne, Drawings Account No. 3001

Date Explanation Post Debit Credit Balance
Ref
2017
30 6 Cash at Bank G2 4 000 4 000
30 6 Lorne Browne, Capital G4 4 000 —
ACCOUNT: Cleaning Revenue Account No. 4000
Date Explanation Post Debit Credit Balance
Ref
2017
6 6 Cash at Bank G2 180 180
21 6 Cash and Accounts Receivable G2 1 600 1 780
28 6 Cash at Bank G2 1 760 3 540
30 6 Accounts Receivable G3 550 4090
30 6 Unearned Cleaning Revenue G3 2 400 6 490
30 6 Profit or Loss Summary G4 6 490 —

ACCOUNT: Gardening Revenue Account No. 4001

Date Explanation Post Debit Credit Balance
Ref
2017
6 6 Cash at Bank G2 2 800 2 800
13 6 Cash at Bank G2 3 000 5 800
21 6 Cash at Bank G2 2 790 8 590
28 6 Cash at Bank G2 2 530 11 120
30 6 Profit or Loss Summary G4 11 120 —

ACCOUNT: Wages Expense Account No. 5000

Date Explanation Post Debit Credit Balance
Ref
2017
14 6 Cash at Bank G2 1 540 1 540
28 6 Cash at Bank G2 1 670 3 210
30 6 Wages Payable G3 620 3 830
30 6 Profit or Loss Summary G4 3 830 —
1 7 Wages Payable (reversing) G5 280

ACCOUNT: Advertising Expense Account No. 5001

Date Explanation Post Debit Credit Balance
Ref
2017
30 6 Prepaid Advertising G3 320 320
30 6 Profit or Loss Summary G4 320 —
ACCOUNT: Rent Expense Account No. 5002
Date Explanation Post Debit Credit Balance
Ref
2017
30 6 Prepaid Rent G3 2 600 2 600
30 6 Profit or Loss Summary G4 2 600 —

ACCOUNT: Washing Supplies Used Account No. 5003

Date Explanation Post Debit Credit Balance
Ref
2017
30 6 Washing supplies G3 800 800
30 6 Profit or Loss Summary G4 800 —

ACCOUNT: Fuel Supplies Used Account No. 5004

Date Explanation Post Debit Credit Balance
Ref
2017
30 6 Fuel Supplies G3 990 990
30 6 Profit or Loss Summary G4 990 —

ACCOUNT: Depreciation Expense Account No. 5005

Date Explanation Post Debit Credit Balance
Ref
2017
30 6 Accumulated Depreciation G3 560 560
30 6 Profit or Loss Summary G4 560 —

ACCOUNT: Profit or Loss Summary Account No. 6000

Date Explanation Post Debit Credit Balance
Ref
2017
30 6 Revenues G4 17 610 17 610
30 6 Expenses G4 9 100 8 510
30 6 Lorne Browne, Capital G4 8 510 —
B.
BROWNE CLEANING AND GARDENING SERVICES
Unadjusted Trial Balance
as at 30 June 2017
Account Account Debit Credit
No.
Cash at Bank 1000 $113 490
Accounts Receivable 1001 300
Prepaid Rent 1003 7 800
Washing Supplies 1004 1 060
Fuel Supplies 1005 1 740
Prepaid Advertising 1006 960
Cleaning and Gardening Equipment 1010 40 320
Accumulated Depreciation 1011
Accounts Payable 2000 $31 820
Unearned Cleaning Revenue 2001 6 400
Wages Payable 2002
Lorne Browne, Capital 3000 120 000
Lorne Browne, Drawings 3001 4 000
Cleaning Revenue 4000 3 540
Gardening Revenue 4001 11 120
Wages Expense 5000 3 210
Advertising Expense 5001
Rent Expense 5002
Washing Supplies Used 5003
Fuel Supplies Used 5004
Depreciation Expense 5005
$172 880 $172 880
C.
Adjusting entries
General Journal Page 3
2017
Jun 30 Wages Expense 5000 620
(a) Wages Payable 2002 620
Accrued Wages owing to employee

30 Washing Supplies Used 5003 800

(b) Washing Supplies 1004 800
Washing supplies that have been
used

30 Fuel Supplies Used 5004 990

(c) Fuel Supplies 1005 990
Fuel supplies that have been used

30 Advertising Expense 5001 320

(d) Prepaid Advertising 1006 320
Four weeks advertising expired

30 Accounts Receivable 1001 550

(e) Cleaning Revenue 4000 550
Cleaning services performed

30 Unearned Cleaning Revenue 2001 2 400

(f) Cleaning Revenue 4000 2 400
Three weeks’ cleaning services
provided to shopping centre

(g) Rent Expense 5002 2 600

Prepaid Rent 1003 2 600
Rent expense for the month of June

Depreciation Expense 5005 560

(h) Accumulated Depreciation 1011 560
Depreciation on cleaning and
gardening equipment for one month
= $40 320 ÷6 × 1/12
Explanations:
(a) Since 28 June, the casual worker has performed additional services for the business but has not
been paid for those services. Hence, the business owes the worker an additional $620, and needs to
record the amount owing as a liability. An accrual adjusting entry is made by the business on 30 June
to reflect the additional expense and the corresponding liability.

(b) When washing supplies were purchased for $1060 on 2 June, the business treated these supplies
as an asset. When the supplies are used in conducting cleaning services, the business needs to
recognise the expense for supplies used and the reduction of the original asset representing supplies
on hand. An inventory taken of washing supplies, amounting to $260 on 30 June, means that $800 are
no longer in the store. It is assumed that the missing supplies were used by the business, (rather than
being stolen).

(c) The same argument applies for fuel supplies as for washing supplies in (b) above.

(d) The advertising contract undertaken with Community Newspapers for the total amount of $960
means that the newspaper is obliged to provide advertising services to the business for 12 weeks. As
the amount was paid in advance by the business, it is correct to treat the amount paid as an asset until
the advertising services have been received. At 30 June, four weeks of services have been received;
hence, it is necessary that 4/12 of the prepaid asset now be transferred to expense as an adjusting
entry.

(e) As cleaning services have been rendered to clients on 29 June, but these services have not been
paid for in cash, the business must issue an invoice for the amount receivable. Even though the
invoice has not yet been issued on 30 June, the entity is entitled to receive payment for services
rendered; hence, on 30 June an adjusting entry is needed to ensure that all revenues are recognised in
the period in which services are performed, and all amounts receivable are recorded as assets.

(f) The business has provided three weeks of cleaning services under the contract with the shopping
centre. The services were paid for in advance by the shopping centre and recorded by the business as
a liability, Unearned Cleaning Services, on receipt of the cash. As $3 200 was paid for the first
month, and ¾ of those services ($2400) have now been provided by the business, an adjusting entry
must be made to transfer the cleaning revenue out of Unearned Revenue.

(g) On 1 June the business paid $ 7800 for three months’ rent in advance on the storage facility by
debiting prepaid rent (asset). By 30 June, one month has passed and therefore one month’s rental
services have been received. An adjusting entry is required to transfer out of the prepaid rent account
$2600 representing the rent expense for the month of June.

(h) The entity purchased equipment on 2 June for a total cost of $40 320. The useful life of this
equipment is expected to be six years. Hence, for the month of June, depreciation of this equipment
must be recorded to reflect the usage of the equipment for that period of time. Depreciation is
calculated as follows:
$40 320 ÷ 6 years × 1/12 (one month) = $560 (rounded to nearest whole number)
D.
BROWNE CLEANING AND GARDENING SERVICES
Adjusted Trial Balance
as at 30 June 2017
Account Account Debit Credit
No.
Cash at Bank 1000 $113 490
Accounts Receivable 1001 850
Prepaid Rent 1003 5 200
Washing Supplies 1004 260
Fuel Supplies 1005 750
Prepaid Advertising 1006 640
Cleaning and Gardening Equipment 1010 40 320
Accumulated Depreciation 1011 $560
Accounts Payable 2000 31 820
Unearned Cleaning Revenue 2001 4 000
Wages Payable 2002 620
Lorne Browne, Capital 3000 120 000
Lorne Browne, Drawings 3001 4 000
Cleaning Revenue 4000 6 490
Gardening Revenue 4001 11 120
Wages Expense 5000 3 830
Advertising Expense 5001 320
Rent Expense 5002 2 600
Washing Supplies Used 5003 800
Fuel Supplies Used 5004 990
Depreciation Expense 5005 560
$174 610 $174 610
E.
Closing Entries
General Journal Page 4
2017
June 30
Cleaning Revenue 4000 6 490
Gardening Revenue 4001 11 120
Profit or Loss Summary 6000 17 610
Close revenue accounts

(b) Profit or Loss Summary 6000 9 100

Wages Expense 5000 3 830
Advertising Expense 5001 320
Rent Expense 5002 2 600
Washing Supplies Used 5003 800
Fuel Supplies Used 5004 990
Depreciation Expense 5005 560
Close expense accounts

(c) Profit or Loss Summary 6000 8 510

Lorne Browne, Capital 3000 8 510
Transfer profit to capital

(d) Lorne Browne, Capital 3000 4 000

Lorne Browne, Drawings 3001 4 000
Close drawings to capital

BROWNE CLEANING AND GARDENING SERVICES

Adjusted Trial Balance
as at 30 June 2017
Account Account Debit Credit
No.
Cash at Bank 1000 $113 490
Accounts Receivable 1001 850
Prepaid Rent 1003 5 200
Washing Supplies 1004 260
Fuel Supplies 1005 750
Prepaid Advertising 1006 640
Cleaning and Gardening Equipment 1010 40 320
Accumulated Depreciation 1011 $560
Accounts Payable 2000 31 820
Unearned Cleaning Revenue 2001 4 000
Wages Payable 2002 620
Lorne Browne, Capital 3000 124 510

$161 510 $161 510

F.

BROWNE CLEANING AND GARDENING SERVICES

Income Statement
for the month ended 30 June 2017
INCOME
Cleaning revenue $6 490
Gardening revenue 11 120 $17 610

EXPENSES
Wages expense 43 830
Advertising expense 320
Rent expense 2 600
Washing supplies used 800
Fuel supplies used 990
Depreciation expense 560 9 100
PROFIT $8 510

BROWNE CLEANING AND GARDENING SERVICES

Statement of Changes in Equity
for the month ended 30 June 2017
Lorne Browne, Capital – 1 June 2017 $120 000
Profit for the month 8 510
128 510
Drawings during the month (4 000)
Lorne Browne, Capital – 30 June 2017 $124 510
 BROWNE CLEANING AND GARDENING SERVICES
Balance Sheet
as at 30 June 2017
CURRENT ASSETS
Cash at bank $113 490
Accounts receivable 850
Prepaid rent 5 200
Washing supplies 260
Fuel supplies 750
Prepaid advertising 640
Total current assets $121 190
NON-CURRENT ASSETS
Cleaning and gardening equipment 40 320
Less: Accumulated depreciation (560)
Total non-current assets 39 760
TOTAL ASSETS $160 950
CURRENT LIABILITIES
Accounts payable 31 820
Unearned cleaning revenue 4 000
Wages payable 620
TOTAL LIABILITIES 36 440
NET ASSETS $124 510

EQUITY
Lorne Browne, Capital $124 510
TOTAL EQUITY $124 510

G.

Reversing entries
General Journal Page 5
2017
July 1 Wages Payable 2002 620
Wages Expense 5000 620
Reverse accruals for wages.

This entry has been posted to the accounts in A. above.