Question

1) Name the four (4) types of adjustments that are necessary for transactions and events that extend over more than one period (HINT: This is from Chapter 3)

2) From your answer on Question 1, provide me with an adjustment example, explain why it is done and provide the adjusting entry in JOURNAL ENTRY FORMAT that would be done for one of the adjustment types. Your answer must contain the type of adjustment it is, why it is done and provide an example of the adjusting journal entry that would be made for the adjustment to earn the points.

Answer 1

1. Transactions which require adjustment are those transactions which spread in future financial year. that s to say those transactions which relate to the next year. Example of these transaction are as follows:

1. Rent paid for months which ill come in next financial year.

2. Insurance premium which spread over next year.

3. Interest on deposits which has accrued but yet not received.

4. Advance payment made for expenses

2. Rent paid for months which ill come in next financial year is made because this payment is for next financial year and should be taken into account in next year only. Following journal entry shall be made:

31/12/2018 Prepaid rent Dr xxxx

To rent xxxx

(Rent paid for next year adjusted)

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