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 U.S. GAAP Codification Accounting Standards, ASC

 Accounting Study Guide

 U.S. GAAP Codification,  Accounting by Topic,  Accounting Terms Financial Accounting,  Intermediate Accounting,  Advanced Accounting

Company A sold its products at the price of \$1,000 for cash. However, this transaction was recorded as \$100 sales. What is the adjusting journal entry to correct this mistake?

Step 1: Identify the original journal entries that have been made during the period.

 Debit Credit Cash 100 Sales 100

[Note] Recorded amount of cash = \$100

Step 2: Identify the correct account balances.

 Debit Credit Cash 1,000 Sales 1,000

[Note] Correct amount of cash = \$1,000 debit balance
Correct amount of sales = \$1,000 credit balance

Step 3: Analyze the differences between correct and current balances and prepare journal entries to adjust such differences.

 Debit Credit Cash 900 Sales 900

[Note] Additional amount to be adjusted = Correct amount - Recorded amount = \$1,000 - \$100 = \$900

On December 1, 20x1, Company A signed an insurance contract and paid \$3,000 cash as insurance premium for three months. Company recorded \$3,000 as prepaid insurance on December 1, 20x1. Prepare the adjusting journal entry at December 31, 20x1.

Step 1: Identify the original journal entries that have been made during the period.

 Debit Credit Prepaid insurance 3,000 Cash 3,000

[Note] Recorded amount of cash = \$3,000

Step 2: Identify the correct account balances.

On December 31, 20x1, \$1,000 insurance premium should be recognized as an expense for December.
(1) Insurance expense: \$1,000 debit balance
(2) Prepaid insurance: \$2,000 debit balance

[Note] Insurance expense for 20x1 = \$3,000 x 1/3  = \$1,000

Step 3: Analyze the differences between correct and current balances and prepare journal entries to adjust such differences.

This journal entry transfers \$1,000 from the "Prepaid insurance" to the "Insurance expense" account.

 Debit Credit Insurance expense 1,000 Prepaid insurance 1,000

[Note] Increase in the "Insurance expense" account --> Debit
Decrease in the "Prepaid insurance" account --> Credit

 U.S. GAAP by Topic Accounting Topics