Adjusting Entries Practice

Note: All adjusting entries are normally recorded at the end of the period.

1. Expenses Incurred but Not Paid – Accrued Expense

1.1. Salaries earned by the company employees for the month ended on July 31, 2022
amounted to Rs. 15,500.
Record the adjusting entry for salaries. What will be the date of transaction?
1.2. Wages are paid every Saturday for a five-day work week (Mon – Fri). Two days are unpaid
and free. Wages are Rs. 2,000 per week.
Prepare the adjusting entry on June 30, assuming July 1 falls on a Wednesday.
1.3. Monthly rent for the Company’s office building amounts to Rs. 5,000 and is paid after the
completion of the month.
Record the adjusting entry for the month ended on April 30.
1.4. Electricity bill (Utility Bill) for the month of March 2022 amounted to Rs. 800.
Record the adjusting entry for electricity bill for month ending on March 31, 2022.
1.5. ABC Limited borrowed RS. 100,000 from a bank on December 1 f. Bank requires the
customer to pay interest at 12% per annum on the principal amount of loan. The loan is due
in six months and no payment of interest or principal is to be made until the loan repayment
is due on May 31.
What adjusting entry ABC Limited will record at the end of December assuming that the
financial statements are prepared on monthly basis.
1.6. A company allows 1 % sales commission to its salesman and pays this commission along-
with the salary of the month. Mr. Ahmad, a salesman, makes a sale of Rs. 250,000 during
the month of May 2022.
What adjusting entry company will record for the commission earned by Mr. Ahmad?
1.7. XYZ Limited prepares its financial statements for the year ended on June 30, 2021. The
company calculates income tax amounting to Rs. 50,000 on its net income earned for the
period ended.
What adjusting entry will be required on June 30, 2021?
2. Expenses Paid in Advance – Prepaid Expenses
2.1. ABC Limited has set up its office in a rented building. As per contract, rent is paid in advance.
On October 01, Rs. 15,000 rent is paid for the quarter October to December.
a. What transaction will be recorded on October 1 i.e at the time of payment of rent.
b. What adjusting entry will be recorded by on October 31 assuming that the company
prepares financial statements on monthly basis.
c. What amount of prepaid rent will appear in Balance Sheet prepared as at October 31?
d. What amount of prepaid rent will appear in Balance Sheet prepared as at November 30?
e. What amount of prepaid rent will appear in Balance Sheet prepared as at December 31?
2.2. On December 1, 2020, your company paid its insurance agent Rs. 2,400 for the annual
insurance premium covering the twelve-month period beginning on December 1.
a. What transaction will be recorded by your company on December 1, 2020.
b. What adjusting entry will be recorded by your company on December 31, 2020 assuming
that the company prepares financial statements on monthly basis.
c. What amount of prepaid insurance will appear in Balance Sheet prepared as at June 30,
2021?
3. Revenues Earned but Not Received – Accrued Revenues
3.1. Your company has rented a floor of the its multiple story office building. As per contract,
monthly rent for the rented floor amounts to Rs. 5,000 and is received after the completion
of the month.
Record the adjusting entry for the month ended April 30 assuming that company prepares
financial statements on monthly basis.
3.2. Fly High is a travel agency involved in the sale of airline tickets. Travel agency has a contract
with a local airline to receive 1 % commission on sale of airline’s ticket. Sale commission is
paid by the airline after completion of the month. During the month of October 2021, the
travel agency sold airline tickets amounting to Rs. 3,000,000.
What adjusting entry will recorded in the books of travel agency on October 31, 2021
assuming that the travel agency prepares its financial statements on monthly basis.
3.3. A bank lent RS. 100,000 to ABC Limited on December 1, 2021 that required the customer to
pay 12% interest on the principal amount of the loan. The loan is due in six months and no
payment of interest or principal is to be made until the loan repayment is due on May 30,
2022.
What adjusting entry the bank will record at the end of December assuming that the bank
prepares monthly financial statements.
3.4. A law consultancy firm contracts one of its clients, Mr. Zeeshan, to plead the client’s case in
court of law. A fee of Rs. 5,000 will be charged to the client for every hearing in the court to
be paid by client in the following month. During the month of November, firm represented
the client 5 times in the court.
What adjusting entry will be recorded the consultancy firm assuming that he firm bills the
clients and prepares its financial statements on monthly basis.
4. Revenues Received in Advance – Unearned Revenues or Deferred Revenue
4.1. A company has rented a floor of the its multiple story office building. As per contract, six-
month advance rent amounting to Rs. 15,000 is received in advance on March 01, 2020.
a. What transaction will be recorded the company on March 1 i.e at the time of receipt of
rent.
b. What adjusting entry will be recorded on March 31 assuming that the company prepares
financial statements on monthly basis.
c. What amount of Unearned Rent will appear in Balance Sheet prepared as on March 31,
2020 and on June 30, 2020 assuming that company prepares financial statements on
monthly basis?
4.2. A company has rented a floor of the its multiple story office building. As per contract, six-
month advance rent amounting to Rs. 15,000 is received in advance on March 01, 2020.
a. What transaction will be recorded the company on March 1 i.e at the time of receipt of
rent.
b. What adjusting entry will be recorded on June 30, assuming that the company makes
adjustments and prepares financial statements on quarterly basis.
c. What amount of Unearned Rent will appear in Balance Sheet prepared as on June 30,
2020?
4.3. On March 1, 2010 an insurance company receives insurance premium of Rs. 12,000 covering
the next quarter period beginning on March 1.
a. What transaction will be recorded by the insurance company on March 1.
 b. What adjusting entry will be recorded by insurance company on March 31 assuming that
the company prepares financial statements on monthly basis.
4.4. A football club sells its tickets on discounted rates in July 2020 in order to finance the
construction of football stadium. Fans will be allowed to use these tickets during the
upcoming football season from October 2020 to January 2021. During the discount offer,
club sold 100,000 tickets for Rs. 500 each.
a. What transaction will be recorded in October for sale of 100,000 tickets?
b. What adjusting entry will be required at the end of October 2020 if 30,000 of these
advanced sold tickets were utilized by the fans during the matched played in October?
5. Consumption of Materials at Period End
5.1. On January 1, 2020 your company began operations. On January 3, it purchased Rs. 1,500 of
supplies. On January 31, your company estimated that Rs. 700 of the supplies were still on
hand in the supply room.
What adjusting entry is required to be recoded on January 31?
5.2. On February 01, 2020 your company had supplies of worth Rs. 800 on hand. During the
month it purchased further supplies of Rs. 2,000. On February 29, your company estimated
that Rs. 900 of the supplies were still on hand in the supply room.
What adjusting entry is required to be recoded on February 29, 2020?
6. Allocation of Cost on an Asset to Expense (Depreciation)
6.1. A company purchases building for its office for Rs. 60,000,000 on January 01, 2011.
Estimated life of the building is 50 years.
a. What adjusting entry for building depreciation will be recorded on January 31, 2011
assuming that company prepares its financial statements on monthly basis?
b. How building will be presented in the Balance Sheet prepared as on January 31, 2011.
6.2. A Plant & Machinery having a useful life of 25 years is purchased on February 01, 2020. Cost
of the asset is Rs. 3,000,000.
a. What adjusting entry will be recorded on March 31, 2020 assuming that company
prepares its financial statements on quarterly basis?
b. How Plant & Machinery will be presented in the Balance Sheet prepared as on March 31,
2020.
c. How Plant & Machinery will be presented in the Balance Sheet prepared as on June 30,
2020.
6.3. A company purchases a vehicle for Rs. 6,000,000 on August 01, 1990. Estimated life of the
vehicle is 5 years.
a. Assume that company is preparing its half yearly financial statements for the period
ending on December 31, 1990. What adjusting entry will be recorded on December 31, 1990
assuming that company makes adjustments on half yearly basis.
b. How vehicle will be presented in the Balance Sheet prepared as on December 31, 1990.