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    lovelyme134's Avatar
    lovelyme134 Posts: 2, Reputation: 1
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    #1

    Nov 5, 2010, 09:31 AM
    I need help determining adjustments
    I really don't understand how to go about even starting adjustments. Here's an example
    a) The unpaid wages as of 3/31 are $1,596.
    b) Issues from the food storeroomfor the month were $9, 875
    c) Free employee meals for the month were $145 and are charged to the Employee Benefits account
    d) The expired portion of Prepaid Insurance is $450

    How do I know what accounts to debit and what accounts to credit?
    Just Looking's Avatar
    Just Looking Posts: 1,610, Reputation: 480
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    #2

    Nov 5, 2010, 10:42 AM

    Do you have a chart of accounts where you can see which accounts are set up?

    To get you started, unpaid wages are wages that were earned but not paid - most likely because it isn't payday yet. The debit would be an expense account such as Wages. This is called an accrued liability because it is an expense that has occurred for the month but is payable in another month. Your credit will be a liability account, such as Wages Payable.

    The Prepaid Insurance question is a monthly charge. Often a company will pay for its insurance for a year or six months in advance. The cost is charged to insurance, and then written off on a monthly basis. You can't charge the cost directly to an expense as you are prepaying the expense in advance but want to write it off as it is used. Your debit will be an expense account, such as Insurance Expense and your credit will be to Prepaid Insurance. Assume for example that the entire cost of insurance for the year is $5,400 and has been paid in advance. The $5,400 will be debited to Prepaid Insurance. If the insurance is based on the months in the policy, the expired portion each month would be $450 ($5,400 divided by 12). Each month the expense is debited by the $450 and the Prepaid Insurance account is credited by $450. By the end of the year, the expense has been debited by $5,400 and the Prepaid Insurance has been credited by $5,400. It's a way of applying the expense as it is incurred.

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