Question
At December 31, 2025, Willowmere Clinic must record its year-end adjustments.
- Prepaid insurance of $2,400 has expired.
- Supplies began the year at $3,000; a count shows $800 still on hand.
- Salaries of $5,000 have been earned by employees but not yet paid.
- Of the $3,500 previously recorded as unearned service revenue, the services have now been performed.
- Depreciation on equipment for the year is $6,000.
Required: Prepare the five adjusting journal entries at December 31, 2025.
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 1 — accrual basis of accounting
Revenue is recognised when earned and expense when incurred, independent of cash movement. For each item ask which period the economic event belongs to, then let the balance sheet carry the difference as a receivable, payable, prepayment or unearned amount.
Common mistakes
- Recognising revenue on receipt of cash in advance rather than as a liability until earned.
- Expensing a payment that covers more than the current period without splitting off the prepaid portion.
- Leaving incurred but unbilled expenses unrecorded because no invoice has arrived.
Further readingThe 5 types of adjusting entry