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When you are doing an adjusting entry, you are just doing no more than that, Adjusting an entry.
For example. If you have rent paid for a year each month you want to "adjust" the entries to show that the months rent was used up or is no longer available. Cash is not involved in the Adjusting entry because the cash was already paid out at the beginning of the year, so if you used the cash account you would be paying out cash for a payment that has already been made.
Say you paid $120,000 on January 1st for the entire years rent. Your first entry would be recorded as such
Jan. 1
Prepaid Rent (DB) $120,000
Cash (CR) $120,000
On Feb 1st you want to adjust the entry to show that one month's rent has expired (or been used up) the entry would be as follows.
Feb. 1
Rent Expense (DB) $10,000
Prepaid Rent (CR) $10,000
No cash is involved in the entry because cash was paid out at the beginning of January.
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∙ 10y ago
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Will an adjusting entry ever affect the asset account called cash?
Adjusting entries never affect cash. The entry is entered to make sure that the books match what the cash balance says.
An adjusting entry should never include?
CASH!
WhAT accounts will never require an adjusting entry?
Cash
Give at least 2 examples of adjusting entries?
I will give two examples but first I will give the original transaction then the "adjusting entry" that would be used.Prepaid Rent, many businesses that "rent" their buildings prepay for months at a time. Say you pay $5,000 a month for rent and you pay Six Months in Advance. It first goes on the books as follows.Prepaid Rent (Debit) $30,000Cash (credit) $30,000After the first month when the company reconciles their books, they need to show that one month of this rent has been "used up", this is an adjusting entry and is as followsRent Expense (debit) $5,000 (we only used one month)Prepaid Rent (credit) $5,000This "adjustment" is made monthly.The second one I will use isYour company purchased a computer on account. When you purchased the computer on account it became an account payable. You decide to make a payment toward the balance you owe, this will go in as an adjusting entry. The accounts would beAccount Payable (debit)Cash (credit)An adjusting entry is just what it's called, an entry to "adjust" an previous entry to it's current or new state. If you never adjusted entries, such as accounts payable, prepaid expense, etc, then your books would be inaccurate.
Why adjusting entries are prepared give some reasons?
Adjusting entries have to be made because a company's assets, expenses, and liabilities never stay the same from one accounting period to another. I will try to give you at least two examples of why adjusting entries must be made.Example 1.A customer purchases items on account for the amount of $500. When the sale is first made the company records this transaction in sales and accounts receivable. Let's just say it's the end of the month and the customer pays $250 on the amount she owes. The company must then make the adjusting entries to show that not only did they receive the money, but to show that the customer paid. An adjusting entry for the $250 will be made to CASH and the appropriate Accounts Receivable.If the company did not make this adjusting entry, then the books would show them as not having collected any money from the customer and not only would the customers account be incorrect, the Cash balance for the company would be off.---- Example 2.A company pays for 12 months insurance. Each month part of what they paid expires, they have to make adjusting entries to this as each month of insurance expires to show that they have used that amount. Say the company pays $480 a year, each month $40 of that would expire (or be used up), the company must make adjusting entries to show that this has occurred or their Prepaid insurance account and expenses will not reflect what the company has actually done.
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