Adjusting Journal Entries Problems and Solution

We have covered Adjusting Entry topic in great depth. Now, it is the right time to practice more to gain better knowledge about the exam styled questions.

YT is a global freight forwarding company. It is in the business since two decade and during that time period, it has acquired sufficient experience for gaining new customers and maintaining a high level of balance for meeting customer’s satisfaction. Every year, YT closes its financial year on 30th June. In order to close this year’s accounting records, accountant need to take care of the following transactions:

  1. Closing inventory $ 20,000.
  2. Prepaid/ unexpired insurance $ 3,000.
  3. Depreciation on machinery $ 2,000.
  4. Provide interest on capital invested $ 2,000.
  5. Commission received from customer in advance $ 2,000.
  6. Outstanding salary $ 6,000.
  7. Interest accrued on security bonds $ 1,000.
  8. Alan who is a customer of YT went into bankruptcy. Amount proved to be irrecoverable from this customer is $ 1,000.
  9. Interest on drawing is to be provided $ 500.
  10. It is the company policy to provide Allowance for doubtful debt @ 10 % on ending balance of accounts receivable which is $ 40,000.


As an accountant of YT, you are required to pass on adjusting entries.



Adjusting Entries

 Closing inventoryP & L A/c(to record closing inventory adjustment)20,000 20,000
 Prepaid insuranceInsurance expenseTo record adjustment of prepaid insurance)3,000 3,000
 Salaries expenseSalary payable(Outstanding salary adjustment)6,000 6,000
 Depreciation expenseAllowance for depreciation(to record depreciation on machinery for the year)2,000 2,000
 Interest receivableInterest income(interest receivable on investment adjusted)1,000 1,000
 Commission incomeUnearned commission(commission received recorded as liability)2,000 2,000
 Bad debt expenseAccounts receivable – Alan(to record bad debts written off adjusting entry)1,000 1,000
 Bad debt expenseAllowance for doubtful debts(allowance for doubtful debt adjusted)4,000 4,000
 Interest on CapitalCapital(interest on capital adjusted)2,000 2,000
 CapitalInterest on drawings(interest on drawings adjusted)500, 500