P3 36a Journalizing And Posting Adjustments To The Four Colu

P3 36a Journalizing And Posting Adjustments To The Four Column Account

P3-36A Journalizing and posting adjustments to the four-column accounts and preparing an adjusted trial balance The unadjusted trial balance of Newport Inn Company at December 31, 2016, and the data needed for the adjustments follow. Adjustment data at December 31 follow: As of December 31, Newport had $600 of Prepaid Insurance remaining. At the end of the month, Newport had $700 of office supplies remaining. Depreciation on the building is $3,500. Newport pays its employees weekly on Friday. Its employees earn $1,500 for a five-day workweek. December 31 falls on Wednesday this year. On November 20, Newport contracted to perform services for a client receiving $2,500 in advance. Newport recorded this receipt of cash as Unearned Revenue. As of December 31, Newport has $1,500 still unearned.

Requirements 1. Journalize the adjusting entries on December 31. 2. Using the unadjusted trial balance, open the accounts (use a four-column ledger) with the unadjusted balances. Post the adjusting entries to the ledger accounts. 3. Prepare the adjusted trial balance. 4. Assuming the adjusted trial balance has total debits equal to total credits, does this mean that the adjusting entries have been recorded correctly? Explain.

Paper For Above instruction

Introduction

The process of adjusting entries and preparing adjusted trial balances is fundamental in ensuring accurate financial statements. Adjustments account for accrued and deferred items that may not be fully reflected in the unadjusted trial balance. This paper illustrates the journalizing and posting of these adjustments for Newport Inn Company, including preparing the adjusted trial balance and analyzing the accuracy of the adjustments based on the trial balance's balance.

Step 1: Journalizing the Adjusting Entries

The first step involves recording the necessary adjusting journal entries as of December 31, 2016. Based on the data provided:

  • Prepaid Insurance: The remaining prepaid insurance is $600. The adjustment involves calculating the amount of insurance expense incurred during December. If initial prepayments were higher, the expense recognized would be the difference.
  • Office Supplies: Ending supplies are $700, indicating supplies used during December are part of the supplies that were initially purchased less the remaining. Adjustment involves recording supplies expense for the amount used.
  • Depreciation: An annual depreciation of $3,500 on the building needs to be recognized for the current period.
  • Accrued Salaries: Employees earn $1,500 per week for five days. Since December 31 is Wednesday, two days' wages need to be accrued.
  • Unearned Revenue: Starting from a contract on November 20 for $2,500, with $1,500 still unearned at year-end; hence, $1,000 revenue has been earned during December.

The journal entries are as follows:

  1. Insurance Expense:

    Dr. Insurance Expense

    Cr. Prepaid Insurance (to decrease prepaid and recognize expense)

  2. Supplies Expense:

    Dr. Supplies Expense

    Cr. Office Supplies (to recognize supplies used)

  3. Depreciation Expense:

    Dr. Depreciation Expense

    Cr. Accumulated Depreciation (to record depreciation on the building)

  4. Salaries Expense:

    Dr. Salaries Expense

    Cr. Salaries Payable (for accrued salaries)

  5. Service Revenue:

    Dr. Unearned Revenue

    Cr. Service Revenue (for the portion earned during December)

Step 2: Posting Adjusting Entries in the Four-Column Ledger

Using the unadjusted trial balance, the accounts are opened with their balances. Adjusting entries are then posted to these accounts to reflect the correct balances. For example:

  • Prepaid Insurance decreased by the amount used during December.
  • Office Supplies account adjusted for supplies used.
  • Accumulated Depreciation increased for depreciation expense.
  • Salaries Payable and Salaries Expense adjusted for accrued wages.
  • Unearned Revenue decreased by the amount earned, and Service Revenue increased accordingly.

Step 3: Preparing the Adjusted Trial Balance

Post-adjustment, the balances of all accounts are compiled into an adjusted trial balance. This ensures the debit and credit totals match, indicating the accounts are balanced post-adjustments. The adjusted trial balance serves as a basis for preparing financial statements.

Step 4: Analyzing the Balance Equivalence and Adjustment Accuracy

If total debits equal total credits in the adjusted trial balance, it indicates that the accounting equation is balanced and that the adjustments were recorded correctly to the best knowledge. However, equality does not guarantee accuracy, as errors such as misclassification, incorrect amounts, or omitted entries could still exist. Nonetheless, the balanced trial balance provides confidence that the entries are at least mathematically consistent.

Conclusion

Adjusting entries are vital for reflecting true economic events in the period they occur, ensuring that financial statements provide an accurate picture of a company's financial position. Posting these journal entries into ledger accounts, summarizing them in an adjusted trial balance, and confirming that debits equal credits are essential steps in the accounting cycle. Properly executed adjustments uphold the integrity of financial reporting, facilitating accurate analysis and decision-making for stakeholders.

References

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