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Preparing "Adjusting Entries" Financial Accounting

  1. Sep 9, 2016 #1
    1. The problem statement, all variables and given/known data
    Use a journal to prepare end-of-month adjusting entries for June 30th, 20-- for the following. The accounting period is one month.
    a) The balance in the supplies account is $865. Inventory taken at the end of the month shows supplies on hand worth $349.

    b) The beginning balance in the prepaid rent account is $9000. The monthly rent is $3000

    c) A 12-month insurance policy was purchased for $2400 at the beginning of the month. The balance in the prepaid insurance account is $2400.

    d) The truck account has a balance of $60 000, and accumulated depreciation - truck has a balance of $30 600. The depreciation rate is 30 % a year, using the declining balance method.

    2. Relevant equations
    Calculating depreciation using the declining-balance method:
    Net book value at the beginning of the year x depreciation rate = annual depreciation expense

    3. The attempt at a solution
    Can someone please tell me if I did part a), b), and c) correctly?
    The only question im really having a problem with is part d), I tried to fill out an adjusting entry for part d), but I don't understand what to do :p

    upload_2016-9-9_22-5-0.png

    upload_2016-9-9_22-5-19.png

    upload_2016-9-9_22-5-38.png

    for part d), i was given the accumulated depreciation - truck which was $30 600. They gave me the accumulated depreciation for the year, which is what im assuming. So to get the accumulated depreciation for the month of june, i have to divide $30 600 by 12. so, $30 600/12 = $2550
    im not sure if this is correct. can someone please explain this part? Thanks :)
    upload_2016-9-9_22-6-3.png


    Thank you for the help!
     
  2. jcsd
  3. Sep 11, 2016 #2

    fresh_42

    Staff: Mentor

    I have a few remarks. Some of which might be due to my lack of understanding the English FA terminology.

    ad a) (supplies)
    $516 is the difference, but shouldn't you start with $865 credit and $349 debit and only balance $516 in the end? (This will lead to an unbalanced sheet here, because the $516 credit here are balanced in cash-flow by $516 debit elsewhere.)

    ad b) (rent)
    Shouldn't there be $9,000 - $3,000 = $6,000 left? Or even $9,000 - 6 $3,000 = -$9,000, depending on the period the $9,000 refer to, which isn't clear to me.

    ad c) (insurance)
    Where's the development? The prepaid yearly rent is $2,400 debit. So you may add $200 a month. This should give you an open credit of $,1200 left over for the rest of the year. If the account has actually still $2,400 in credit, which I can't exactly figure out, then you will have a rest credit of $1,200 at year's end. Sounds wrong to me.

    ad d) (truck)
    Again I'm not sure about the data. Is $60,000 the purchase value of the truck some years ago, or is it the current balance value? I suppose its current value is $30,600. Now you have to display your monthly depreciation. If the truck is balanced with $30,600 (when? End of May? Start of the financial year? May I suppose FY = calendar year?), so if the truck is $30,600 by end of May, then you have to balance 1/12 30% x = y where x depends on the value you have in the balance by end of May and / or the method of depreciation, i.e. whether it is based upon purchase value or current value.
     
    Last edited: Sep 11, 2016
  4. Sep 12, 2016 #3
    for a),
    I am journalizing an adjuting entry, so I dont include the original supplies amount (which is $865). I was given $865 as the original amount of supplies at hand, at the end of the month the supplies on hand was worth only $349. According to my lesson, I am supposed to find out how much supplies was used throughout the month ($516). Generally, the office supplies account is supposed to increase on the debit side since it is an asset, but because $516 worth of supplies was used up, the office supplies account decreases by $516 on the credit side. Generally, expenses increase on the debit side, the $516 worth of supplies used by the business incurs an expense (called supplies expense) of $516. Since the supplies expense account is increasing, the $516 for expense is recorded on the debit side. This was the explanation from my lesson.

    for b),
    The question is asking me to prepare adjusting entries in a journal for the month of june (which is a one month accounting period). Part b) tells me that the monthly rent is $3000. We started with an original balance of $9000 for prepaid rent. Since the monthly rent is $3000, and the accounting period is only one month, this means that as the month of june comes to an end, only $3000 worth of rent was "used up" by the business. Generally, The prepaid rent account (which is an asset) increases on the debit side, but in this case it is decreasing, because $3000 worth of rent was "used up", so $3000 is recorded on the credit side for the prepaid rent account. Because a certain amount of rent was used up ($3000) it produces an expense (Called rent expense) of $3000. Generally, expenses increase on the debit side, so i recorded $3000 on the debit side.

    for c),
    here is a section taken from my lesson, to explain prepaid insurance:
    upload_2016-9-12_16-51-44.png

    upload_2016-9-12_16-55-19.png

    for d), i changed my answer...
    Inorder to use the following equation, I must first find the net book value:
    Net book value at the beginning of the year x depreciation rate = annual depreciation expense (this is the yearly depreciation expense)

    Net book value:
    $60 000 - $30 600 = $29 400

    Substitute the Net book value into the equation to solve for the yearly depreciation expense:
    $29 400 x 0.30% = $8820

    the value $8820 is the yearly depreciation expense as well as the accumulated depreciation for one year for the truck.
    To find the monthly depreciation expense and the monthly accumulated depreciation (for the month of june): divide $8820 by 12
    $8820/12 = $735 ($735 is the depreciation expense and accumulated depreciation for 1 month)
    upload_2016-9-12_16-44-24.png
     
  5. Sep 12, 2016 #4

    fresh_42

    Staff: Mentor

    Well, your reasoning shows me, that you know what to do. I only added my layman comments when I read your sheets.
    I'm far from being an expert on the issue. Especially since I didn't know the overall list of possible cost accounts. Each of the positions falls into a different category plus a different fiscal treatment.
    In addition it depends on countries, balancing methods as well as legal forms plus the handling of the various reporting periods: balance (usually = financial year), fiscal year (may differ from financial year), external reporting (often a quarter), internal reporting (usually monthly), calendar year. And all have there own regulations and often different schemes.
     
    Last edited: Sep 12, 2016
  6. Sep 12, 2016 #5

    Mark44

    Staff: Mentor

    @alexandria, we don't get much call for help with accounting here at PF. I'm reasonably sure there are sites out there that are more helpful, but I don't know of any. I am not trying to discourage you from posting here, but, like I said, we don't get many questions like this.
     
  7. Sep 12, 2016 #6
    Ok, I will try to find other sources to help me with this qts but thanks for trying :)
     
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