Consider the following independent scenarios. For each, you need to identify three things: (i) the type of adjusting entry (either prepaid expense, prepaid income, accrued expense, accrued income, depreciation or doubtful debts) (ii) the accounts involved and the adjustment that is needed (increase/decrease) (iii) the effect on the Income Statement AND Balance Sheet of recording the adjustment. (a) A consulting firm had office supplies on hand at the start of May worth $450 recorded as an asset. During May they purchased another $250 worth of supplies. At the end of May, there were only $130 worth of supplies remaining. (b) A delivery business purchased a new truck on 1 April for $100,000. It was expected to last for five years with $20,000 residual value. Depreciation needs to be recorded at the end of June the same year. (c) A business receives its electricity account every three months, with the next one expected at the end of July. It needs to record electricity consumption for May and June, which is estimated at $400 per month. (d) A business has an investment of 1,000 shares of a publicly listed company. The dividend of $0.20 per share has just been announced at 30 June, but will not be paid for several weeks. (e) A gym received a $300 payment from a member on 1 June 2024 for three months membership, recording it as a liability. An adjustment is required at 30 June. (f) A business needs to increase its allowance for doubtful debts by $2,000. In addition, it has been notified that a customer who owes $250 will not pay.

(a) (i) Prepaid expense (ii) The accounts involved are Office Supplies Expense and Office Supplies. The adjustment needed is to decrease Office Supplies by $570 ($450 + $250 -$130) and increase Office Supplies Expense by the same amount. (iii) The Income Statement will show an increase in expenses, reducing net income. The Balance Sheet will show a decrease in assets (Office Supplies).

(b) (i) Depreciation (ii) The accounts involved are Depreciation Expense and Accumulated Depreciation. The adjustment needed is to increase both accounts by $5,000 [($100,000 - $20,000) / 5 years * 3/12 months]. (iii) The Income Statement will show an increase in expenses, reducing net income. The Balance Sheet will show an increase in Accumulated Depreciation (a contra asset), reducing net assets.

(c) (i) Accrued expense (ii) The accounts involved are Electricity Expense and Accrued Expenses. The adjustment needed is to increase both accounts by $800 ($400 per month * 2 months). (iii) The Income Statement will show an increase in expenses, reducing net income. The Balance Sheet will show an increase in liabilities (Accrued Expenses).

(d) (i) Accrued income (ii) The accounts involved are Dividend Receivable and Dividend Income. The adjustment needed is to increase both accounts by $200 (1,000 shares *$0.20 per share). (iii) The Income Statement will show an increase in income, increasing net income. The Balance Sheet will show an increase in assets (Dividend Receivable).

(e) (i) Prepaid income (ii) The accounts involved are Unearned Revenue and Membership Revenue. The adjustment needed is to decrease Unearned Revenue by $100 ($300 / 3 months * 1 month) and increase Membership Revenue by the same amount. (iii) The Income Statement will show an increase in revenue, increasing net income. The Balance Sheet will show a decrease in liabilities (Unearned Revenue).

(f) (i) Doubtful debts (ii) The accounts involved are Allowance for Doubtful Debts, Bad Debt Expense, and Accounts Receivable. The adjustment needed is to increase Allowance for Doubtful Debts and Bad Debt Expense by $2,000, and decrease Accounts Receivable by$250. (iii) The Income Statement will show an increase in expenses, reducing net income. The Balance Sheet will show an increase in Allowance for Doubtful Debts (a contra asset), a decrease in Accounts Receivable, resulting in a decrease in net assets.