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The ledger of Columbia, Inc. on March 31, 2014, includes the following selected accounts before adjusting entries.
Debit Credit
Prepaid Insurance 2,240
Supplies 3,120
Equipment 36,000
Unearned Service Revenue 13,600
An analysis of the accounts shows the following.
1. Insurance expires at the rate of $280 per month.
2. Supplies on hand total $960.
3. The equipment depreciates $240 per month.
4. During March, services were performed for two-fifths of the unearned service revenue.
Prepare the adjusting entries for the month of March.

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Answer:

Journal 1

Debit : Insurance expense $280

Credit : Prepaid Insurance $280

Being Insurance expense recognized

Journal 2

Debit : Supplies expense $2,160

Credit : Supplies $2,160

Being Supplies Expense Recognized

Journal 3

Debit : Depreciation expense $240

Credit : Accumulated depreciation $240

Being Depreciation expenses recognized

Journal 4

Debit : Unearned Service Revenue $5,440

Credit : Service Revenue Earned $5,440

Being Service Revenue Earned being recognized

Explanation:

Expenses are decreases in income that results as an increase in liabilities and decreases in assets. Note the Decreases in Assets and Increases in Liabilities that have occurred - they represent Expenses which need to be recognized.

Service revenue is recognized when the services are actually performed, thus Reverse the Unearned Service Revenue when services are performed.

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