Adjusting entries

Question 1

Adjusting the accounts is the process of…

Answer 1

Updating the accounts at the end of the period

Question 2

Using accrual based accounting, expenses are recorded and reported only…

Answer 2

When they are incurred, whether or not cash is paid.

Question 3

‘Super Fitness’ bought a new gym equipment on 1 June 2021 for $15,000. It is expected to last 5 years, with $0 residual value. What debit and credit accounts are affected?

Answer 3

Debit - Depreciation expense

Credit - Accumulated depreciation

Question 4

On 1 June 2021, ‘Super Fitness’ receives $650 from a client who paid the amount in advance for a package of 5 physical training sessions. The client completes one training session on 30 June 2021. The adjusting entry at 30 June2021 would be:

Answer 4

Debit - Revenue received in advanced $130

Credit - Gym Revenue $130

Question 5

On 1 June 2021, ‘Super Fitness’ pays a 12-month insurance policy of $1,800. The adjusting entry at 30 June 2021 would be:

Answer 5

Debit - Insurance expense $150

Credit - Pre-paid insurance $150

Question 6

Adjusting entries only arrises when cash based account is adopted. True or False

Answer 6

False

Question 7

Why must some accounts be adjusted on the last day of the accounting period?

Answer 7

To correctly recognise expenses and income.

Question 8

What are Deferrals? provide 2 categories..

Answer 8

Pre-payments

1. Prepaid expense
2. Unearned revenue

Question 9

provide 2 examples of Prepaid expenses

Answer 9

Prepaid insurance

Prepaid rent

Question 10

Adjust this entry…

Initial entry
Dr - prepaid expense (asset)
Cr - Cash

Answer 10

Adjusted entry
Dr - expense
Cr - Prepaid expense (asset)

Question 11

Accumulated depreciation is a contra asset, what does it represent?

Answer 11

The total amount of the assets cost that has been CHARGED to depreciation expense over the periods.

Question 12

What is unearned revenue?

Answer 12

Cash received in advanced for services that are to be performed in the future.

Question 13

Unearned magazine subscription revenue, rent received in advance, adjust this entry…

Initial entry
Dr - Cash
Cr - Unearned revenue (liability)

Answer 13

Adjusted entry
Dr - Unearned revenue (Liability)
Cr - Revenue

Question 14

What are Accruals? Provide 2 categories…

Answer 14

Unrecorded

1. Accrued expenses
2. Accrued revenue

Question 15

What are accrued expenses?

Answer 15

Expenses that have been incurred in the period, but payment has not yet been made, thus they are unrecorded expenses.

Question 16

What is accrued revenue?

Answer 16

Revenues that have been earned in the period but payment has not yet been received.