Adjusting Journal Entries Problems and Solution

We have covered Adjusting Entry topic in great depth. Now, it is the right time to practice more to gain better knowledge about the exam styled questions.

YT is a global freight forwarding company. It is in the business since two decade and during that time period, it has acquired sufficient experience for gaining new customers and maintaining a high level of balance for meeting customer’s satisfaction. Every year, YT closes its financial year on 30th June. In order to close this year’s accounting records, accountant need to take care of the following transactions:

  1. Closing inventory $ 20,000.
  2. Prepaid/ unexpired insurance $ 3,000.
  3. Depreciation on machinery $ 2,000.
  4. Provide interest on capital invested $ 2,000.
  5. Commission received from customer in advance $ 2,000.
  6. Outstanding salary $ 6,000.
  7. Interest accrued on security bonds $ 1,000.
  8. Alan who is a customer of YT went into bankruptcy. Amount proved to be irrecoverable from this customer is $ 1,000.
  9. Interest on drawing is to be provided $ 500.
  10. It is the company policy to provide Allowance for doubtful debt @ 10 % on ending balance of accounts receivable which is $ 40,000.

Required

As an accountant of YT, you are required to pass on adjusting entries.

Solution

YT

Adjusting Entries

Date

Particulars

Debit

Credit

 

Closing inventory

P & L A/c

(to record closing inventory adjustment)

20,000

 

20,000

 

Prepaid insurance

Insurance expense

To record adjustment of prepaid insurance)

3,000

 

3,000

 

Salaries expense

Salary payable

(Outstanding salary adjustment)

6,000

 

6,000

 

Depreciation expense

Allowance for depreciation

(to record depreciation on machinery for the year)

2,000

 

2,000

 

Interest receivable

Interest income

(interest receivable on investment adjusted)

1,000

 

1,000

 

Commission income

Unearned commission

(commission received recorded as liability)

2,000

 

2,000

 

Bad debt expense

Accounts receivable – Alan

(to record bad debts written off adjusting entry)

1,000

 

1,000

 

Bad debt expense

Allowance for doubtful debts

(allowance for doubtful debt adjusted)

4,000

 

4,000

 

Interest on Capital

Capital

(interest on capital adjusted)

2,000

 

2,000

 

Capital

Interest on drawings

(interest on drawings adjusted)

500,

 

500