Question

Information below is provided for a retail business which sells household appliances and electrical goods.

Required

1. Prepare General Journal entries for the balance day adjustments as at 30^th June, in the current year.

for:

1. The business received its electricity bill on 29 June, for $823. This covered usage of electricity from 20 March to 20 June. The bill was filed and will be paid by the due date of 10 July.
2. The business paid $1 260 on 1 September last year for twelve months’ car insurance. At the time of the transaction, Insurance Expense was debited and Cash at Bank credited, for $1 260.
3. Employees are paid every Monday morning for the previous five day working week. $1,200 of wages was paid on Monday 2^nd July.
4. A customer paid a deposit of $400 on 29 June, for a three-month service contract commencing 1 July. On 29 June, the accountant recorded a debit to Cash at Bank of $400 and a credit of $400 to Service Fees Revenue account.
5. The business met their sales goal of 100 Phillips brand televisions sold for June. They expect to receive commission revenue of $550 from Phillips in the last week of July.

2. Separately show your workings or provide an explanation of your reasoning for each of the transactions.

Answer 1

Journal entries for the balance day adjustments as at 30th June, in the current year.

	Date	Account Title and Explanation	Debit	Credit
1	Jun-30	Utility Expense	823
		Utility Payable		823
2	Jun-30	Prepaid expense	840
		Insurance expense		840
		Insurance Expense	630
		Prepaid expense		630
3	Jun-30	Salaries Expense	1200
		Salaries Payable		1200
4	Jun-30	Service Fee Revenue	400
		Unearned service revenue		400
5	Jun-30	Commission receivable	550
		Commission revenue		550

Explanation:

1. Electricity (Utility) expense for 20th March to 20th June should be recorded at the end of June 30 even though the due to date is July 10th because this expense accrued before June 30.

2.At the time of insurance payment made on September 1 of the last year the entry should be,

Prepaid insurance	1260
Cash at bank		1260

and at the end of last year, adjusting entry should be

Insurance expense	420
Prepaid expense		420

Note: insurance expense for 4 months (From Sept 1 to Dec 31 of last year)

But actually they recorded on Sept 1 as

Insurance Expense	1260
Cash at bank		1260

Therefore we need adjust the above wrong entry as follows;

Prepaid Insurance	840
Insurance expense		840

by this entry Insurance expense decrease by $840 and Prepaid insurance increased by $840.

Note: Insurance expense for 8 months (From Jan 1 to August 31) is $840
Current year insurance expense from Jan 1 to June 30 will be,

Prepaid expense	630
Insurance expense		630

Instead of both the entries as mentioned above, We can write single entry as follows;

Prepaid expense	210
Insurance expense		210

3. Salaries expense $1200 is related to June because it accrued in the month of June.

4. Correct entry for Unearned service revenue is

Cash	400
Unearned Service revenue		400

But they recorded incorrectly as

Cash	400
Service revenue		400

Therefore the adjusting entry will be

Service Fee Revenue	400
Unearned service revenue		400

By this entry Service revenue decreased and Unearned service revenue (Liability) Increased.

5. Commission of $550 is related to June 30 as it accrued in the month of June.