LU6

Question 1

What are adjusting entries?

Answer 1

Entries that bring the general ledger up to date to comply with the matching principle

Question 2

What are correcting entries?

Answer 2

Entries which fix errors, NOT the same as adjusting entries

Question 3

Adjusting entry: Cost of Sales

Answer 3

(perpetual inventory system): the issues from the storeroom increase “cost of food sales” (expense) and reduces the “food inventory” (asset)

Question 4

Adjusting entry: Employee meals

Answer 4

the storeroom issues include food served to both guests and employees, but the COS account should only show food served to guests. Therefore, an adjustment is necessary, showing the amount of money spent on employee meals. “Employee meals expense” thus increases and “COS expense” decreases.

Question 5

Adjusting entry: Supplies used

Answer 5

(asset method): Increases the “supplies expense” and reduces the “supplies inventory”.

Question 6

Adjusting entry: Prepaid Insurance

Answer 6

Company X buys €1,200 euros in Dec 2018 for a year starting from Jan 2019. After Jan 2019 €100 of the prepaid insurance expired, therefore “prepaid insurance” is reduced and “insurance expense” increased.

Question 7

Adjusting entry: Depreciation

Answer 7

The cost of a long-lived asset is allocated over its useful life, called depreciation. The depreciation for a vehicle this month was €500. In the adjusting entries it is recorded by increasing “depreciation expense” and increasing the “accumulated depreciation” contra-asset account.

Question 8

Adjusting entry: China, Glassware, Silver

Answer 8

Replacements of china, glassware and silver are charged to expense, however the initial purchase has been charged to an asset account. This group also depreciates over its useful life, however no accumulated depreciation account is used. Instead, “china, glassware, and silver expense” is increased, and the asset account is reduced

Question 9

Adjusting entry: Payroll

Answer 9

A business will always have unpaid payroll at the end of any week or month, as the workweek and payday are different. Therefore, a payroll adjusting entry might be required to comply with the matching principle (recording expenses during the month in which they occurred). Thus, “payroll expense” increases and “accrued payroll” liability account increases

Question 10

Adjusting entry: Payroll Taxes

Answer 10

Payroll taxes are often levied on the employer, with payment due the following month or later date. The adjusting entry is recorded by increasing the “payroll taxes” expense, and increasing the “accrued payroll taxes” liability account

Question 11

What happens after the adjusting entries?

Answer 11

an adjusted trial balance can be created and a new net income has to be calculated