Answer:
(a) Debit Deferred revenue $800
Credit Revenue $800
Being entries to recognize revenue earned as at October 31.
(b) Debit Insurance expense $400
Credit Prepaid Insurance $400
Being entries to record insurance expense incurred as at October 31.
(c) Debit Depreciation expense $400
Credit Accumulated depreciation $400
Being entries to record depreciation expense on machine as at October 31
Explanation:
Adjusting entries are required when transactions have occurred but are yet to be properly accounted for in the company's books.
(a) Cash collected in advance results in the debit in cash account and a credit to deferred revenue. When the revenue is earned, it is recognized by crediting revenue and debiting deferred revenue with the amount earned.
As at October 31, amount earned
= 1/3 × $2,400
= $800
Entries required
Debit Deferred revenue $800
Credit Revenue $800
Being entries to recognize revenue earned as at October 31.
(b) For amount paid in advance, the expense is recorded when incurred by debiting the expense account and crediting prepaid account to reduce the amount prepaid.
Expense incurred as at October 31
= 1/3 × $1,200
= $400
Entries required
Debit Insurance expense $400
Credit Prepaid Insurance $400
Being entries to record insurance expense incurred as at October 31.
(c) Depreciation expense is recognized as the fixed asset is used by debiting the expense account and crediting the accumulated depreciation account.
Since the annual depreciation is $4,800
Monthly depreciation = 1/12 × $4800
= $400
Entries required
Debit Depreciation expense $400
Credit Accumulated depreciation $400
Being entries to record depreciation expense on machine as at October 31
