Question

1. Which of the following are examples of adjusting entries?

i) An entry to record interest owing on a bank loan at the end of the period. The interest is not yet paid, and is previously unrecorded.
ii) A depreciation entry to reflect the use of long-lived equipment during the period.
iii) An entry to correct an error that was discovered in the trial balance, when a $100 debit was incorrectly posted to inventory rather than accounts receivable.

a. i & ii

b. i & iii

c. ii & iii

d. i, ii, & iii

2. Which of the following would be the adjusting journal entry to recognize earned but unpaid wages for the period?

a. Debit. Wages Expense, Credit. Cash

b. Debit. Wages Payable, Credit. Cash

c. Debit. Wages Payable, Credit. Wages Expense

d. Debit. Wages Expense, Credit. Wages Payable

3. When an inventory item that cost $75 is sold on account for $100, which of the following would be included in the journal entry recording the cost of goods sold?

a. Debit. Cash $100

b. Credit. Cost of goods sold $75

c. Credit. Accounts Receivable $100

d. Credit. Inventory $75

Answer 1

1 . Correct Answer for this Question is Option a. i&ii

Adjusting entries are the entries which are used to comply with the accrual concept of

accounting. Accrual concept says that revenue and expenses should be recognized as and

when they are incurred irrespective of cash is received or paid.

Adjusting entries are recorded at the end of the accounting period so that income and

expenses comply with the accrual concept. The main purpose of adjusting entries is to match the

revenue and costs to appropriate accounting periods.

Examples: 1)   Adjusting entry is made at year-end when we have made payments for expenses

of next year in order to adjust the expense of the current period so that it will comply with

the accrual concept.

In the question, interest expense is not yet paid, so in order to make the accounts comply with

the accrual concept, an entry should be made for expenses payable. - Option I is an adjusting entry.

2 ) Similarly, we have to make adjusting entry for any revenue accounts if we have received payment

for goods or services to be performed in the next financial year.

3)Entry for depreciation is an example of adjusting entry because the costs of the assets should be

charged as expenses in the years in which the asset is used.

So Option ii is also an adjusting entry

Option iii is not an adjusting entry, it is only a rectification of error previously made while

recording an entry earlier.

2. Correct Answer is Option d - Debit wages expense, Credit wages payable

Unpaid wages should be recorded to comply with the accrual concept of accounting.

The wages expense account is debited so that expense for the current period is increase and wages payable

is credited since it is amiability to be paid in the next year.

3 .Correct Answer is Option d .Credit inventory $75.

The entry to record cost of goods sold is

Debit          Credit

Cost of goods sold                     $75

Inventory                                                       $75

Cost of goods sold is debited so that expense is booked and inventory is credited so that balance of

inventory is reduced.