Problem 4-2A: Prepare Adjusting Journal Entries For June 201

Problem 4-2A Prepare Adjusting Journal Entries for June 2014

The problem presents a trial balance for Lumas Consulting as of June 30, 2014, along with additional data that requires adjusting entries to properly reflect the financial position of the company at month-end. The task involves making adjusting journal entries based on accrued, deferred, and estimated transactions, followed by postings to ledger accounts, and preparing an adjusted trial balance.

Paper For Above instruction

Introduction

Accounting adjustments are essential to ensure that financial statements accurately reflect a company’s financial position and performance according to the accrual basis of accounting. For Lumas Consulting, these adjustments involve recognizing expenses and revenues that have been incurred or earned but are not yet recorded in the trial balance as of June 30, 2014. The necessary entries include adjusting supplies, utilities, insurance, revenues, and depreciation, as well as accruing expenses such as salaries payable. This paper demonstrates the process of preparing these adjusting journal entries, posting them to ledger accounts, and compiling an adjusted trial balance, thus ensuring compliance with accounting standards and providing a clear financial picture for stakeholders.

1. Adjusting Supplies

Supplies on hand as of June 30 are valued at $730. The supplies account initially shows a balance of $2,051. To recognize the supplies used during June, we calculate the supplies expense by subtracting the ending supplies inventory from beginning inventory: $2,051 (initial supplies) minus $730 (supplies on hand). This results in $1,321 of supplies used. However, the problem’s data explicitly mentions supplies expense of $730, indicating supplies on hand after adjustments. Therefore, the adjusting journal entry decreases supplies and recognizes supplies expense:

Supplies Expense 730

Supplies 730

2. Adjusting Utilities Expense

A utility bill of $221 has not been recorded, which increases utilities expense. The adjusting entry increases utilities expense and accounts payable, since the bill will be paid next month:

Utilities Expense 221

Accounts Payable 221

3. Adjusting Prepaid Insurance

The insurance policy is for a year, and premiums paid are initially recorded as prepaid insurance ($3,240). Since one month has passed, insurance expense needs to be recognized for June. The monthly expense is calculated as $3,240 divided by 12 months, which equals $270. The adjusting entry records this expense and reduces prepaid insurance balance:

Insurance Expense 270

Prepaid Insurance 270

4. Recognizing Earned Revenue from Unearned Service Revenue

Unearned service revenue of $5,200 includes $4,258 earned during June, as services were performed for that amount. The adjustment involves decreasing unearned revenue and recognizing revenue earned:

Unearned Service Revenue 4,258

Service Revenue 4,258

5. Accruing Salaries and Wages

Outstanding salaries of $1,312 accrued at June 30 have not been recorded. The adjustment increases salaries and wages expense and creates a liability:

Salaries and Wages Expense 1,312

Salaries and Wages Payable 1,312

6. Recording Depreciation Expense

The equipment has a useful life of five years with no salvage value, depreciated at $250 per month ($15,000 / 60 months). The monthly depreciation expense of $250 is recognized:

Depreciation Expense 250

Accumulated Depreciation—Equipment 250

7. Recording Unbilled Services

Services worth $3,950 performed during June have not been recorded. This involves increasing accounts receivable and recognizing revenue:

Accounts Receivable 3,950

Service Revenue 3,950

Postings and Ledger Balances

Each adjusting journal entry would then be posted to the respective ledger accounts, updating balances from the trial balance to reflect the adjustments. For example, the supplies account would decrease by $730, utilities payable increases by $221, prepaid insurance decreases by $270, unearned revenue decreases by $4,258, salaries payable increases by $1,312, accumulated depreciation increases by $250, accounts receivable increases by $3,950, and revenue increases accordingly.

Adjusted Trial Balance Preparation

Finally, using the ledger balances adjusted for these entries, an adjusted trial balance is prepared to verify the equality of debits and credits. The adjusted totals incorporate all accrued, deferred, and estimated expenses and revenues, giving an accurate depiction of the company's financial health at the end of June 2014.

Conclusion

Accurate financial reporting relies on proper adjusting journal entries. For Lumas Consulting, the adjustments ensure revenues are recognized in the period earned and expenses matched to the period incurred, conforming with GAAP standards. Proper posting to ledgers and compiling of the adjusted trial balance creates a foundation for preparing financial statements that faithfully present the company’s financial position as of June 30, 2014.

References

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