Question

Andy Roddick is the new owner of Novak Computer Services. At the end of August 2020, his first month of ownership, Roddick is trying to prepare monthly financial statements. Below is some information related to unrecorded expenses that the business incurred during August.

1. At August 31, Roddick owed his employees $1,900 in wages that will be paid on September 1. $1,900
2. At the end of the month he had not yet received the month's utility bill. Based on past experience, he estimated the bill would be approximately: $600
3. On August 1, Roddick borrowed $30,000 from a local bank on a 15 -year mortgage. The annual interest rate is 8%
4. A telephone bill in the amount of $117 covering August charges is unpaid at August 31.

Required:
Prepare the adjusting journal entries as of August 31, 2014, suggested by the information above.

Answer 1

Novak Computer Services

Adjusting Journal Entries on August 31, 2014:

1. Debit Wages Expense $1,900

Credit Wages Payable $1,900

To accrue unpaid wages for the month.

2. Debit Utilities Expense $600

Credit Utilities Payable $600

To accrue unpaid utilities for the month.

3. Debit Interest Expense $200

Credit Interest Payable $200

To accrue unpaid interest for the month.

4. Debit Telephone Expense $117

Credit Telephone Payable $117

To accrue unpaid telephone bill for the month.

Step-by-step explanation:

The above adjusting journal entries are made to Novak's journal at the end of August, 2014. Adjusting entries ensure that income and expenses are allocated to the actual month in which the income or expense was incurred, whether cash exchanged hands or not. Adjusting entries are required in line with the accrual concept and the matching principle of the generally accepted accounting principles.