Give the journal entries for the following adjustments: (a) Outstanding salary ₹ 3,500. (b) Rent unpaid for one month at ₹ 6,000 per annum. (c) Insurance prepaid for a quarter at ₹ 16,000 per annum. (d) Purchase of furniture costing ₹ 7,000 entered in the purchases book.
Salary A/c Dr. 3,500; To Outstanding Salary A/c 3,500
Rent A/c Dr. 500; To Outstanding Rent A/c 500 (Calculation: 6,000 / 12 months)
Prepaid Insurance A/c Dr. 4,000; To Insurance A/c 4,000 (Calculation: 16,000 / 4 quarters)
Furniture A/c Dr. 7,000; To Purchases A/c 7,000
Explanation
The journal entries are prepared based on the rules of accounting for adjustments identified in the text.
(a) Outstanding Salary: Salary is an expense that has been incurred but not yet paid. It is debited to increase the expense, and the credit records the liability (Outstanding Salary).
(b) Rent Unpaid: Rent unpaid for one month is calculated as ₹ 6,000 per annum divided by 12 months = ₹ 500. Rent A/c is debited, and Outstanding Rent A/c is credited.
(c) Insurance Prepaid: Prepaid insurance is an asset. For a quarter (3 months) at ₹ 16,000 per annum, the calculation is ₹ 16,000 divided by 4 quarters = ₹ 4,000. Prepaid Insurance A/c is debited (asset increases), and Insurance A/c is credited (expense decreases).
(d) Purchase of Furniture: Furniture is an asset, not a purchase (stock). Since it was wrongly entered in the purchases book, we debit Furniture A/c to record the asset and credit Purchases A/c to remove the incorrect entry.