Journal Entry Adjustment in Accounting — Practice Questions
Companies typically adjust journal entries as part of the end-of-period accounting process. These adjustments are necessary to make final entries for the year and ensure that the company’s financial statements are accurate and complete.
The following practice questions offer some useful examples of journal entry adjustments.
At the end of the year, an accountant finds paperwork for a sale of product already shipped to the customer that was not fully recorded. The amount of the sale was $50,000, and the cost of the inventory was $20,000. The proper entry for the sale was recorded correctly. What is the proper adjusting entry to record the cost of the transaction?
An accountant realizes that the bill for electricity for December was not received, and therefore, the associated expense was not recorded. After speaking with the utility company, he estimates the December bill will total approximately $500. What is the proper entry to record the required entry adjustment related to this invoice?
Answers and explanations
Debit cost of goods sold $20,000 and credit inventory $20,000
Because the sale portion of the transaction was already recorded, the only portion that still needs to be recorded is the decrease to inventory and increase to cost of goods sold. The cost of the inventory was $20,000; therefore, the cost of goods sold needs to be debited (increased) $20,000, and inventory needs to be credited (decreased) $20,000.
Debit utility expense $500 and credit accounts payable $500
The bill hasn’t been received, but the expense relates to December. Therefore, the company must record the estimated amount by increasing (debiting) utility expense and crediting (increasing) accounts payable.
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