:: CHAPTER 3 ::

ADJUSTING THE ACCOUNTS

--- LAMIA ALAM
 Depreciation and Accumulated
FEW Depreciation
IMPORTANT
CONCEPTS Accrued Interest on Notes
Payable
DEPRECIATION AND ACCUMULATED DEPRECIATION

- Depreciation is the process of allocating the cost of an

asset to expense over its useful life.
- It is an expense.

- Accumulated depreciation is a contra-asset account (with a credit

balance).
- It is reported on the balance sheet as a reduction from the gross
amount of total asset.
JOURNAL ENTRY FOR DEPRECIATION

Depreciation Expense DR.

Accumulated Depreciation CR.
 Pioneer Advertising signed a three-month note
payable in the amount of $60,000 on October
1. The note requires Pioneer to pay interest at
ACCRUED an annual rate of 10%.
INTEREST ON
NOTES
PAYABLE
The amount of the interest recorded is determined
by three factors:
the interest rate, which the length of time
the face value of is always expressed as the note is
the note an annual rate outstanding.
JOURNAL ENTRY FOR ACCRUED INTEREST EXPENSE

Face Annual Time in

Value of Interest terms of
Note Rate one year $500
$60,000 10% 1/12

Interest Expense DR. 500

Interest Payable or A/P CR. 500
P3-1A
 KRAUSE CONSULTING
ADJUSTING ENTRIES
AS ON MAY 31, 2020
Date Details Ref. Debit Credit
No.
May- 31 Supplies Expense DR. 900
Supplies CR. 900
May- 31 Utility Expense DR. 250
A/P CR. 250
May- 31 Insurance Expense DR. 150
Prepaid Insurance [3,600 / 24] CR. 150
May- 31 Unearned Revenue DR. 1,600
Service Revenue [2000-400] CR. 1,600
May- 31 Salaries Expense DR. 1,104
A/P [920/5 X 3 X 2] CR. 1,104
May- 31 Depreciation Expense DR. 190 190
Accumulated Depreciation CR.
May- 31 A/R DR. 1,700 1,700
Service Revenue CR.
PRACTICE EXERCISE

E3-6,7,8,9,10
P3- 1A, 2A
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