Chapter 3, Problem 1PB

1.

To determine

Record the adjusting entries for the given transactions on May 31, 2016.

Adjusting Entries

Adjusting entries indicates those entries, which are passed in the books of accounts at the end of one accounting period. These entries are passed in the books of accounts as per the revenue recognition principle and the expenses recognition principle to adjust the revenue, and the expenses of a business in the period of their occurrence.

Rule of Debit and Credit:

Debit - Increase in all assets, expenses & dividends, and decrease in all liabilities and stockholders’ equity.

Credit - Increase in all liabilities and stockholders’ equity, and decrease in all assets & expenses.

The following entry shows the adjusting entry for accrued fees unearned on May 31, 2016:

Date	Account Titles and Explanation	Debit ($)	Credit ($)
May 31, 2016	Accounts Receivable	19,750
	Fees earned		19,750
	(To record the accounts receivable at the end of the year.)

Table (1)

The impact on the accounting equation for the above referred adjusting entry is as follows:

$\left\{\begin{array}{l}\text{Assets(A)}\\ +\$19,750\end{array}\right\}=\left\{\begin{array}{l}\text{Liabilities}\text{(L)}\text{+}\text{Equities}\text{(E)}\\ +\$19,750\end{array}\right\}$

2.

To determine

Explain the difference between the adjusting entries and correcting entries.