What adjusting journal entries are needed on December 31 for Supplies ($2,800; $600 on hand), Prepaid insurance ($6,000 for a 1-year policy starting Nov 1), Unearned revenue ($8,000; 25% earned), and Accrued salaries ($3,000)?

What these adjustments are doing

On December 31, you adjust accounts so the financial statements follow the accrual basis: match expenses to the period used, and recognize revenue when it is earned (not when cash is received).

Supplies: convert the unused asset into an expense

• Balance before adjustment (asset): Supplies $2,800
• Physical count on hand: $600
• Supplies used: $2,800 - $600 = $2,200

Adjusting entry

• Dr Supplies Expense $2,200
• Cr Supplies $2,200

Prepaid insurance: recognize the portion that expired

Policy term is 1 year starting Nov 1, so monthly cost is: $$$6{,}000\div 12 = 500\text{ per month}$$ By Dec 31, 2 months have passed (Nov and Dec): $$500\times 2 = 1{,}000$$

Adjusting entry

• Dr Insurance Expense $1,000
• Cr Prepaid Insurance $1,000

Unearned revenue: move earned portion to revenue

Unearned revenue is a liability until earned.

• Unearned revenue balance: $8,000
• Earned during the year: $8,000 \times 0.25 = $2,000

Adjusting entry

• Dr Unearned Revenue $2,000
• Cr Rent Revenue (or Service Revenue) $2,000

Accrued salaries: record expense incurred but not yet paid

Accrued salaries means the company owes employees at period end.

Adjusting entry

• Dr Salaries Expense $3,000
• Cr Salaries Payable $3,000

Quick check after posting (what changes)

• Supplies (asset) decreases by $2,200
• Prepaid insurance (asset) decreases by $1,000
• Unearned revenue (liability) decreases by $2,000
• Salaries payable (liability) increases by $3,000