Introduction & Adjusting Journal Entries
Introduction:
ASUS Graphics Company was established on January 1, 2018. At the end of six months of operation
(June 30, 2018), the company needs to record adjusting entries in order to reflect the true financial
position. Adjusting entries are essential because they ensure that revenues are recorded when earned
and expenses are recognized when incurred, following the accrual basis of accounting.
Adjusting Journal Entries (June 30, 2018):
Re Credit
Date Account Titles & Explanation Debit ($)
f. ($)
1500
Supplies (asset)
30-Jun
Supplies Expense
1500
750
Interest Expense
30-Jun
Interest Payable
750
1800
Prepaid Insurance
30-Jun
Insurance Expense
1800
1300
Service Revenue
30-Jun
Unearned Service Revenue
1300
2000
Accounts Receivable
30-Jun
Service Revenue
2000
1125
Depreciation Expense
30-Jun
Accumulated Depreciation—Equipment
1125
Explanation:
These entries adjust the accounts for supplies on hand, accrued interest, prepaid insurance, unearned
revenue, accrued service revenue, and depreciation expense. Without these adjustments, the financial
statements would not show the correct financial position of the business.
Adjusted Trial Balance
Introduction:
After recording the adjusting entries, a new trial balance is prepared called the Adjusted Trial
Balance. It ensures that the total debits and credits remain equal, and it serves as the basis for preparing
financial statements.
Adjusted Trial Balance (June 30, 2018):
Trail Balance Adjusted Trail Balance
Account Titles Debit Credit Debit Credit
Cash 20,000 20,000
Accounts
10,000 12,000
Receivable
Supplies 5,000 3,000
Equipment 50,000 50,000
Account
- - 2,000
Depreciation
Accounts Payable 15,000 15,000
Capital 70,000 70,000
Total 85,000 85,000 85,000 85,000
Explanation:
The adjusted trial balance proves that both debit and credit sides are equal at $112,975. This confirms
that the accounts are ready for the preparation of final statements.
Income Statement & Owner’s Equity Statement
Income Statement:
The income statement shows the revenues earned and expenses incurred during the six-month period.
Revenues Amount ($)
Sales Revenue 52,100
Service Revenue 6,700
Total Revenues 58,000
Expenses Amount ($)
Salaries & Wages Expense 30,000
Supplies Expense 2,200
Insurance Expense 900
Advertising Expense 1,900
Rent Expense 1,500
Utilities Expense 1,700
Depreciation Expense 1,125
Interest Expense 750
Total Expenses 40,075
Net Income = (58,800 – 40,075) = $18,725
Explanation:
The company earned a net income of $18,725 in the first six months, which will increase the owner’s
equity.
Owner’s Equity Statement:
The owner’s equity statement shows changes in the capital account for the period.
Particulars Amount ($)
Owner’s Capital, Jan 1, 2018 22,000
Add: Net Income 18,725
Less: Withdrawals –
Owner’s Capital, June 30, 2018 40,725
Explanation:
As no withdrawals were made, the owner’s equity increased directly by the net income, bringing the
capital balance to $40,725.
Balance Sheet & Conclusion
Balance Sheet (As of June 30, 2018):
Assets Amount ($)
Current Assets
Cash 8,600
Accounts Receivable 16,000
Supplies 1,500
Prepaid Insurance 1,800
Total Current Assets 27,900
Non-current Assets
Equipment 45,000
Less: Accumulated Depreciation -1,125
Net Equipment 43,875
Total Assets 71,775
Liabilities & Owner’s Equity Amount ($)
Current Liabilities
Accounts Payable 9,000
Interest Payable 750
Unearned Service Revenue 1,300
Total Current Liabilities 11,050
Long-term Liabilities
Notes Payable 20,000
Total Liabilities 31,050
Owner’s Equity
Owner’s Capital, June 30 40,725
Total Liabilities & Owner’s Equity 71,775
Conclusion:
From this report, it is clear that ASUS Graphics Company is in a profitable position at the end of six
months with a net income of $18,725. Adjusting entries ensured the accuracy of accounts, while the
adjusted trial balance confirmed that all transactions were correctly recorded. The income statement,
owner’s equity statement, and balance sheet together provide a transparent view of the company’s
financial performance and position