Question

Each of the following independent events requires a year-end adjusting entry. Show how each event and its related adjusting entry affect the accounting equation. Assume a December 31 closing date. The first event is recorded as an example. (Do not round intermediate calculations. Enter any decreases to account balances with a minus sign.)
1. Paid $6,300 cash in advance on April 1 for a one-year insurance policy.
2. Received a $15,300 cash advance for a contract to provide services in the future. The contract required a one-year commitment starting September 1.
3. Purchased $1,750 of supplies on account. At year’s end, $130 of supplies remained on hand.
4. Paid $6,300 cash in advance on March 1 for a one-year lease on office space.

Answer 1

Answer:

1. Prepaid insurance (Dr.) $6,300

  Cash (Cr.) $6,300

2. Cash (Dr.) $15,300

   Unearned Income (Cr.) $15,300

3. Purchases (Dr.) $1,750

   Accounts payable (Cr.) $1,750

   Cost of Goods Sold (Dr.) $1,620

   Ending Inventory (Dr.) $130

   Purchases (Cr.) $1,750

4. Prepaid office rent (Dr.) $6,300

   Cash (Cr.) $6,300

Explanation:

The adjusting entry is a journal entry recorded at end of accounting period to adjust events or transactions to comply with the accrual concept.

The closing entries are journal entries required to close a transaction or event in the period. The purpose is to follow matching concept of accounting.