Question

example of an adjusting journal entries

Answer 1

Adjusting journal entries are those entries which convert accounting records to accrual basis of accounting.

Examples of adjusting entries:

1. Insurance purchased on June 30 for one year. Give adjusting entry as on December 31.

= So in this case when the insurance was purchased, the entry would have been:

Prepaid Insurance Debit 10,000

Cash Credit 10,000

(To record the purchase of insurance.)

Now the adjusting entry has to get passed on December 31. As the insurance is purchased for one year, only period for which relates to current period has to be charged to Profit and Loss Account as per Accrual concept of accounting. So the first amount to be charged has to get calculated.

The amount will be

10,000 x 6 /12

= 5,000

The entry for adjusting entry would be

Insurance Expense Debit 5,000

Prepaid Insurance Credit 5,000

(To record the accrual of expense)