Page 120 - Accounting Principles (A Business Perspective)

3. Adjustments for financial reporting

MICROTRAIN COMPANY
Trial Balance
2010 December 31
Acct.
No. Account Title Debits Credits
100 Cash $ 8,250
103 Accounts Receivable 5,200
107 Supplies on Hand 1,400
108 Prepaid Insurance 2,400
112 Prepaid Rent 1,200
150 Trucks 40,000
200 Accounts Payable $ 730
216 Unearned Service Fees 4,500
300 Capital Stock 50,000
320 Dividends 3,000
400 Service Revenue 10,700
505 Advertising Expense 50
506 Gas and Oil Expense 680
507 Salaries Expense 3,600
511 Utilities Expense 150 $65,930
$65,930
Exhibit 17: Trial balance
In this chapter, we illustrate each of the four types of adjusting entries: asset/expense, liability/revenue,
asset/revenue, and liability/expense. Look at Exhibit 17, the trial balance of the MicroTrain Company at 2010
December 31. As you can see, MicroTrain must adjust several accounts before it can prepare accurate financial
statements. The adjustments for these accounts involve data already recorded in the company’s accounts.

In making adjustments for MicroTrain Company, we must add several accounts to the company’s chart of
accounts shown in Chapter 2. These new accounts are:
Type of Account Acct. Account Title Description
Asset No. Interest Receivable The amount of interest earned but not
Contra asset* 121 Accumulated yet received. The total depreciation
Liability Revenue 151 Deprecation—Trucks expense taken on trucks since the
Expenses 206 Salaries Payable acquisition date. The balance of this
418 Interest Revenue account is deducted from that of Trucks
512 Insurance Expense on the balance sheet.
515 Rent Expense The amount of salaries earned
518 Supplies Expense by employees but not yet paid
521 Depreciation Expense— by the company.
Trucks The amount of interest earned
in the current period.
The cost of insurance incurred
in the current period.
The cost of rent incurred in
the current period.
The cost of supplies used in
the current period.
The portion of the cost of the
trucks assigned to expense
during the current period.
*Accountants deduct the balance of a contra asset from the balance of the related reasons for using a asset account on the balance sheet. We explain the
contra asset account later in the chapter.
Now you are ready to follow as MicroTrain Company makes its adjustments for deferred items. If you find the
process confusing, review the beginning of this chapter so you clearly understand the purpose of adjusting entries.

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