Question

The post-closing trial balance as of April 30, 20Y8, is shown below:

Kelly Consulting Post-Closing Trial Balance April 30, 20Y8
	Account No.	Debit	Credit
Cash	11	22,100
Accounts Receivable	12	3,400
Supplies	14	1,350
Prepaid Rent	15	3,200
Prepaid Insurance	16	1,500
Office Equipment	18	14,500
Accumulated Depreciation	19		330
Accounts Payable	21		800
Salaries Payable	22		120
Unearned Fees	23		2,500
Common Stock	31		30,000
Retained Earnings	32		12,300
		46,050	46,050

Enter the unadjusted trial balance on an end-of-period spreadsheet (work sheet) and complete the spreadsheet using the following adjustment data.

1. Insurance expired during May is $275.
2. Supplies on hand on May 31 are $715.
3. Depreciation of office equipment for May is $330.
4. Accrued receptionist salary on May 31 is $325.
5. Rent expired during May is $1,600.
6. Unearned fees on May 31 are $3,210.

If an amount box does not require an entry, leave it blank or enter "0".

Kelly Consulting End-of-Period Spreadsheet (Work Sheet) For the Month Ended May 31, 20Y8
	Unadjusted Trial Balance		Adjustments		Adjusted Trial Balance		Income Statement		Balance Sheet
Account Title	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit
Cash
Accounts Receivable
Supplies
Prepaid Rent
Prepaid Insurance
Office Equipment
Accum. Depreciation
Accounts Payable
Salaries Payable
Unearned Fees
Common Stock
Retained Earnings
Dividends
Fees Earned
Salary Expense
Rent Expense
Supplies Expense
Depreciation Expense
Insurance Expense
Miscellaneous Expense
Net income

Answer 1

This question is all about how prepaid expenses, accrued expenses or unearned revenue shall be treated while preparing books of accounts. The following is the definition of aforesaid mentioned along with the reasons how they are to be recorded in books of accounts.

1. Prepaid expenses- These are the expenses that have been paid for in advance. Example, rent for a month is 10000 and it is due to be paid on the 7^th of the following month. However, the entity decides to pay rent for three months April, May and June on 7^th of May. In this case, rent for April month i.e. 10000 will be taken to income statement as an expense. However, rent for May and June (i.e. 20000) are prepaid and will be taken to balance sheet as it is a current asset. On 7^th of June, rent for the month of may (i.e. 10000) will be booked in income statement as expense and an equivalent amount will be deducted from prepaid rent of 20000 lowering down the balance to 10000.

In the given question, prepaid rent $1,600 and prepaid insurance of $275 has been expired during the month of May. Therefore, these amounts will be taken to income statement as expense and equivalent amount will be deducted from balance sheet under respective heads.

Journal Entry will be:

Dr Rent/Insurance Expense

To Prepaid rent/insurance

2. Accrued Expenses- Accrued expenses are the expenses which are incurred but for which payment will be paid at a later date. Example, salary is paid in the following month. For the last month of an accounting period, the salary will be shown as accrued in books i.e. it will be shown as expense in income statement with corresponding liability in balance sheet.

Journal entry is :

By Salary expense

To Accrued Salary

3. Unearned Revenue- This revenue is the money received in advance from the customer for which goods or services has not been delivered. This is a liability in nature. Journal entry for unearned revenue is :

By Cash A/c       Dr  

To Unearned Revenue