Accounting Cycle

Topics: Generally Accepted Accounting Principles, Depreciation, Asset Pages: 2 (330 words) Published: December 2, 2012
Accounting Cycle

Explain why adjusting entries are necessary.
Adjusting entries are necessary because, normal journal entries are based on actual transactions. The date the transactions take place might not be the same date that payment is needed to fulfill the matching principle of accrual accounting. (NetMBA, 2002-2012) Adjusting entries ensures that at any specific point in time that balance sheets are current with the accounts. Describe the 4 types of adjusting entries, and provide a manufacturing industry example of each.

Prepaid expenses are a cash payment that is recorded as an asset before it’s used. (Corporation, 2004-2012) Adjusting Entry| Debits| Credits|
Property & Casualty Expense| 1,700.00| |
Prepaid Insurance| | 1,700.00|

Depreciation expense is when the cost of an asset is distributed as it’s used over a period of time. (Editorial Board, 2012)

Adjusting Entry| Debits| Credits|
Depreciation Expense| 120,000.00| |
Accumulated Depreciation – Equipment| | 120,000.00|

Unearned revenue is earnings that are collected in cash but are recorded as liabilities before being earned. (Corporation, 2004-2012)

Adjusting Entry| Debits| Debits|
Unearned Revenue| 13,050.25| |
Revenue| | 13,050.25|

Accrued expense is expenses previously gained, but not yet paid or recorded. (Corporation, 2004-2012) Adjusting Entry| Debits| Debits|
Salary Expense| 9,700.00| |
Wages and Salaries Payable| | 9,700.00|

Describe 1 ethical issue that could result from the preparation of these manufacturing entries.
The ethical issue that could take place is miscalculations of the entries. The accountant should ensure that their reducing prepaid asset and increasing the expenses. All liabilities and expenses should be included in the entries.


Corporation, T. S. (2004-2012). Adjusting Entries in Accounting. Retrieved November 2, 2012, from...
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