Complex adjustments and reduced scaffolding with authentic accounting notation
Complex Adjustments and the Full Close
Put the full workflow into practice with more complex scenarios and less guidance.
In Phase 2, you walked through each step of the month-end close with heavy guidance. Now the scaffolding comes down. You will work with a more complex set of adjustments, use authentic accounting formats, and explain your reasoning—not just compute answers.
Here is Sarah's unadjusted trial balance as of March 31, 2024. Your task: identify every adjustment, record the entries, and walk through the complete close.
| Account | Debit | Credit |
|---|---|---|
| Cash | $18,500 | |
| Accounts Receivable | $6,200 | |
| Supplies | $8,000 | |
| Prepaid Insurance | $3,600 | |
| Equipment | $24,000 | |
| Accumulated Depreciation | $800 | |
| Accounts Payable | $4,500 | |
| Unearned Revenue | $2,400 | |
| Common Stock | $30,000 | |
| Retained Earnings (beginning) | $5,000 | |
| Dividends | $2,000 | |
| Service Revenue | $28,000 | |
| Wages Expense | $12,000 | |
| Rent Expense | $3,000 | |
| Totals | $77,300 | $70,700 |
Additional Information for Adjustments:
- Supplies on hand at March 31: $2,500
- Prepaid insurance is a 12-month policy purchased March 1
- Equipment was purchased February 1. Useful life: 5 years. Salvage value: $0. Straight-line depreciation.
- Wages earned March 28-31 but not yet paid: $1,800
- Unearned revenue of $2,400 was for a 2-month project. One month is complete by March 31.
- Services worth $900 were performed in March but not yet billed or recorded.
Use the unadjusted trial balance and additional information above to identify every required adjustment. Select the correct debit and credit accounts, calculate the amount, and check all entries at once. Feedback is given after submission.
For each adjustment below, select the correct debit and credit accounts and enter the dollar amount. Use the additional information to calculate each amount. You will check your work after completing all entries.
Note: The unadjusted trial balance above shows debits of $77,300 and credits of $70,700. This difference will be resolved once all adjustments are recorded correctly.
Supplies on hand at March 31: $2,500. Unadjusted Supplies balance: $8,000.
Prepaid insurance is a 12-month policy purchased March 1. Unadjusted balance: $3,600.
Equipment purchased February 1. Cost: $24,000. Useful life: 5 years. Salvage: $0. Straight-line method.
Wages earned March 28-31 but not yet paid: $1,800.
Unearned revenue of $2,400 was for a 2-month project. One month is complete by March 31.
Services worth $900 were performed in March but not yet billed or recorded.
After recording all adjustments, update each affected account balance. These adjusted balances feed into the adjusted trial balance and the financial statements.
Supplies: $8,000 - $5,500 = $2,500
Prepaid Insurance: $3,600 - $300 = $3,300
Accum. Depr.: $800 + $400 = $1,200
Wages Payable: $0 + $1,800 = $1,800
Unearned Revenue: $2,400 - $1,200 = $1,200
A/R: $6,200 + $900 = $7,100
Supplies Expense: $0 + $5,500 = $5,500
Service Revenue: $28,000 + $1,200 + $900 = $30,100
Answer these questions in your own words. These test your understanding of why adjustments work the way they do—not just the mechanics.
- Why does depreciation use a contra-asset account (Accumulated Depreciation) instead of directly reducing the Equipment account? What information would be lost if we reduced Equipment directly?
- How does the accrued revenue adjustment (Adjustment F) affect both the Income Statement and the Balance Sheet? Trace the impact through both statements.
- If Sarah skipped Adjustment D (accrued wages), which financial statement would be most affected and how? Would the error carry forward into the next period?
- Depreciation is cumulative: Accumulated Depreciation carries forward from month to month. March's $400 adds to February's $800 balance.
- Unearned Revenue is a liability: When you earn part of it, you reduce the liability and increase revenue—not the other way around.
- Accrued revenue creates an asset: Services performed but not billed means Accounts Receivable increases, not Cash.
- Adjusted trial balance must balance: If debits and credits don't match after adjustments, find the error before proceeding.