The Unadjusted Trial Balance For Smith Constructions

the unadjusted trial balance for smith constructions and the information needed

Prepare the adjusting entries and the adjusted trial balance for Smith Construction based on the unadjusted trial balance and related adjustments provided. The adjustments include insurance coverage remaining at May 31 ($1,000), supplies used during the month ($800), depreciation on equipment ($2,400), accrued utilities expense ($200), accrued wages ($1,000), and unearned revenue at month-end ($2,000).

Paper For Above instruction

Introduction

Accounting relies on the preparation of trial balances as a preliminary step toward preparing financial statements. An unadjusted trial balance presents the balances of all ledger accounts at a specific point in time, prior to making adjustments for accrued expenses, deferred revenues, depreciation, and other necessary adjustments to ensure that financial statements accurately reflect the company’s financial position. This paper discusses the process of preparing adjusting entries and an adjusted trial balance for Smith Construction based on the provided unadjusted trial balance and additional information.

Unadjusted Trial Balance Overview

The unadjusted trial balance as of May 31 for Smith Construction comprises various accounts with their respective debit and credit balances. The accounts include cash, accounts receivable, prepaid insurance, supplies, equipment, tools, accounts payable, unearned revenue, common stock, dividends, service revenue, salary expense, rent expense, and repair expense. The balances recorded do not include adjustments for expenses incurred but not yet recorded or revenues earned but not yet recognized, which necessitate the preparation of adjusting entries.

Essential Adjustments and their Implications

The provided data indicate several necessary adjustments to properly reflect the financial position:

  • Insurance: Remaining coverage at May 31 is $1,000. Assuming the initial prepaid insurance was recorded at a higher amount, an adjustment for insurance expense is needed to reflect the portion used during the month.
  • Supplies: Supplies used during the month amount to $800, thus supplies expense needs to be increased, and supplies asset decreased accordingly.
  • Depreciation: Equipment depreciation for the month totals $2,400, which should be recorded as depreciation expense, increasing accumulated depreciation and decreasing book value of equipment.
  • Utilities: Accrued utilities expense of $200 must be recognized even though payment will occur in June, increasing utilities expense and accrued utilities liability.
  • Wages: Accrued wages of $1,000 at May 31 need to be recorded as wages expense and wages payable, despite not having paid yet.
  • Unearned Revenue: Revenue still unearned at month-end totals $2,000. The appropriate portion of unearned revenue would be recognized as earned revenue, decreasing unearned revenue and increasing service revenue accordingly.

Preparation of Adjusting Entries

Based on the above adjustments, the following entries should be recorded:

  1. Insurance Adjustment: 
    Insurance Expense ............ $XXX
    

    Prepaid Insurance ..................... $XXX

    (Note: The exact amount of insurance used needs to be calculated based on initial prepaid amount; assuming the remaining is $1,000, the used amount depends on prior balance, which is not fully specified here.)

  2. Supplies Adjustment: 
    Supplies Expense ............ $800
    

    Supplies ..................... $800
  3. Depreciation Expense: 
    Depreciation Expense ............ $2,400
    

    Accumulated Depreciation ............ $2,400
  4. Utilities Accrual: 
    Utilities Expense ............ $200
    

    Utilities Payable .................... $200
  5. Wages Accrued: 
    Wages Expense ............ $1,000
    

    Wages Payable .................... $1,000
  6. Unearned Revenue Recognition: 
    Unearned Revenue ............ $2,000
    

    Service Revenue .................... $2,000

Constructing the Adjusted Trial Balance

After posting the adjusting entries, the account balances are updated to reflect adjusted figures, forming the basis for the adjusted trial balance. For example, supplies account decreases by $800, equipment increases in accumulated depreciation by $2,400, and unearned revenue decreases by $2,000, while service revenue increases by $2,000. These adjustments ensure that all revenues and expenses are properly recognized in the correct period, aligning with the matching principle and revenue recognition conventions in accounting.

Conclusion

Preparing the adjusted trial balance involves identifying the necessary adjustments based on supporting data, recording the appropriate journal entries, and updating account balances accordingly. This process ensures that the financial statements derived from the trial balance are accurate and compliant with accounting standards. For Smith Construction, the adjustments related to insurance, supplies, depreciation, utilities, wages, and unearned revenue are essential to accurately portray the company's financial position as of May 31.

References

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