Question
Sterling Consulting prepares adjusting entries annually. Its unadjusted trial balance at December 31, 2025 is shown below.
| Account | Debit | Credit |
|---|
| Cash | 14,800 | |
| Accounts Receivable | 9,200 | |
| Supplies | 4,400 | |
| Prepaid Insurance | 3,600 | |
| Equipment | 48,000 | |
| Accumulated Depreciation - Equipment | | 8,000 |
| Accounts Payable | | 5,300 |
| Unearned Service Revenue | | 6,000 |
| Owner Capital | | 32,500 |
| Service Revenue | | 58,600 |
| Salaries and Wages Expense | 24,000 | |
| Rent Expense | 6,400 | |
| 110,400 | 110,400 |
An analysis of the accounts at December 31, 2025 reveals the following:
- A physical count shows supplies of $1,700 on hand.
- The prepaid insurance balance represents a 12-month policy purchased on July 1, 2025 for $3,600.
- Annual depreciation on the equipment is $4,000.
- Salaries of $1,500 have been earned by employees but are unpaid at December 31.
- Of the unearned service revenue, $2,400 has been earned by December 31.
- Services of $3,100 were performed in December but have not yet been billed to clients.
Instructions:
- Prepare the adjusting entries at December 31, 2025.
- Prepare an adjusted trial balance at December 31, 2025.
Statements in this challenge
- Adjusting EntriesJournal Entry
- Adjusted Trial BalanceTrial Balance
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 1 — Presentation of Financial Statements
Work the cycle in its fixed order: journalise, post to the ledger, extract an unadjusted trial balance, pass adjusting entries, extract an adjusted trial balance, prepare the statements, then close the temporary accounts. Each step consumes the output of the one before it, so an error early on propagates all the way to the closing entries rather than staying local.
Common mistakes
- Preparing the financial statements from the unadjusted trial balance instead of the adjusted one.
- Closing permanent accounts — assets, liabilities and capital carry forward; only revenue, expense and drawings/dividends close.
- Forgetting that the post-closing trial balance should contain no income statement accounts at all.
Further readingIAS 1: what goes where in a full set of statements