Chapter 5
The Accounting Cycle: Adjustments
120
Depreciation =
$10,000 – $1,000
5 Years
×
4
12
= $600 for 4 months
The same accounts would be used as the ones in the journal entry in Figure 5.19, but the amount
of depreciation would only be $600.
Adjusted Trial Balance
The sixth step of the accounting cycle is to prepare the adjusted trial balance.To help illustrate this
step, return to the sample company MP Consulting introduced in the previous chapter. At the end
of the fourth step of the accounting cycle, we had prepared the trial balance for the business, shown
in Figure 5.21.
MP Consulting
Trial Balance
January 31, 2016
Account Titles
DR
CR
Cash
$3,800
Accounts Receivable
3,000
Prepaid Insurance
1,200
Equipment
8,300
Accounts Payable
$1,250
Unearned Revenue
2,000
Bank Loan
2,500
Parish, Capital
10,300
Parish, Drawings
2,000
Service Revenue
3,300
Rent Expense
800
Telephone Expense
250
Total
$19,350 $19,350
______________
FIGURE 5.21
This trial balance is the balance of the general ledger accounts after all the regular day-to-day
transactions have been recorded in the general journal and posted to the general ledger. It is from
these balances that MP Consulting will make adjusting entries. Suppose the company has the
following adjustments to make at the end of the month
1
The company borrowed cash from the bank at a 12% rate of interest. Using the interest
calculation introduced earlier in the chapter, accrued interest for the month is calculated as
Interest = $2,500 × 12% × 1
12 = $25 per month
