3

The Adjusting Process

Student Version
1

1
Describe the nature of
the adjusting process.

33-2
1-2
2

Types of Accounts
Requiring Adjustment

Prepaid expenses are the

advance payment of future
expenses and are recorded as
assets when cash is paid.

3-3
1-3

1
Types of Accounts
Requiring Adjustment

Unearned revenues are the

advance receipt of future
revenues and are recorded
as liabilities when cash is
received.
3-4
1-4

1
Types of Accounts
Requiring Adjustment

Accrued revenues are unrecorded

revenues that have been earned
and for which cash has yet to be
received.

3-5
1-5

1
Types of Accounts
Requiring Adjustment

Accrued expenses are unrecorded

expenses that have been incurred
and for which cash has not been
paid.

3-6
1-6

2
Journalize entries for
accounts requiring
adjustment.

3-7
3-7
1-7

Prepaid Expenses
NetSolutions Supplies account has a balance of
$2,000 in the unadjusted trial balance. Some of
these supplies have been used. On December 31,
a count reveals that $760 of supplies are on hand.
Supplies (balance on trial balance) $2,000
Supplies on hand, December 31
760
Supplies used
$1,240
3-8
1-8

Supplies
Bal.

2,000 Dec. 31
760

3-9
1-9

14

Supplies Expense

1,240 Bal.
Dec. 31

55

800
1,240

2,040

Prepaid Expenses

The debit balance of $2,400 in

NetSolutions Prepaid
Insurance account represents
the December 1 prepayment of
insurance for 12 months.

3-10
1-10

10

Bal. Prepaid Insurance

Dec. 31
2,4002,200

3-11
1-11

15
200

Insurance Expense
Dec. 31 200

56

11

Unearned Revenues

The December 31 unadjusted

trial balance of NetSolutions
indicates a balance in the
unearned rent account of $360.

3-12
1-12

12

Dec. 31 Unearned Rent

Bal.
120

3-13
1-13

23
360

Rent Revenue

42

13

Dec. 31 Unearned Rent

Bal.
Bal.
120

3-14
1-14

23
360
240

Rent Revenue
Dec. 31

42

120

14

Accrued Revenues

NetSolutions signed an agreement with

Danker Co. on December 15 to
provide services at $20 per hour. As of
December 31, NetSolutions had
provided 25 hours of assistance.
3-15
1-15

15

Accounts Receivable 12
Bal.
2,220
Dec. 31
500
Bal.
2,720
3-16
1-16

Fees Earned
Bal.

41
16,340

16

Accounts Receivable 12
Bal.
2,220
Dec. 31
500
Bal.
2,720
3-17
1-17

Fees Earned
Bal.
Dec. 31
Bal.

41
16,340
500
16,840

17

Accrued Expenses
NetSolutions pays it employees biweekly.
During December, NetSolutions paid wages of
$950 on December 13 and $1,200 on December
27. As of December 31, NetSolutions owes
$250 of wages to employees for Monday and
Tuesday.
3-18
1-18

18

Wages Payable

3-19
1-19

22

Wages Expense
Bal.
4,275
Dec. 31
250
Bal.
4,525

51

19

Wages Payable
Dec. 31

3-20
1-20

22
250

Wages Expense
Bal.
4,275
Dec. 31
250
Bal.
4,525

51

20

The journal entry for the payment of

wages on January 10 is shown below.

After
posting

3-21
1-21

21

NetSolutions estimates the

depreciation on its office
equipment to be $50 for
the month of December.

3-22
1-22

22

Depreciation Expense
Dec. 31
50

3-23
1-23

53

Accum. Depr.Office Equip. 19

23

Depreciation Expense
Dec. 31
50

3-24
1-24

53

Accum. Depr.Office Equip. 19

Dec. 31
50

24

NetSolutions balance sheet would

show office equipment at cost, less
accumulated depreciation.
Office equipment $1,800
Less accumulated
depreciation
50 $1,750
Book
value
3-25
1-25

25

3
Summarize the
adjustment process.

33-26
1-26
26

26

3
Exhibit 7

3-27
1-27

Adjusting EntriesNetSolutions

(continued)

27

3
Exhibit 7

Adjusting EntriesNetSolutions (continued)

3-28
1-28

28

4
Prepare an adjusted trial
balance.

33-29
1-29
29

29

4
Exhibit 9

3-30
1-30

Adjusted Trial BalanceNetSolutions

30

3-31
1-31

31