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Worked-example setupScope and assumptions
- Northline's only unadjusted balances are $10,000 Cash and $10,000 owner-sourced equity.
- Northline completed $4,800 of qualifying service by December 31, has a valid customer claim, and has not billed or recorded it.
- Employees completed $2,700 of December service that Northline has not recorded or paid.
- Amounts are known, no other period-end adjustments apply, and later settlement occurs at the recorded amounts.
- Period
- December 31 reporting date before closing
- Units
- USD
- Rounding
- Whole US dollars; no rounding required
Problem
Northline's unadjusted trial balance contains $10,000 Cash and $10,000 Owners' Equity. At December 31, Northline identifies $4,800 of completed unbilled service and $2,700 of employee service received but unpaid. Neither event is recorded. Assume the completed service qualifies for revenue and the right to payment is unconditional. There are no other opening balances. Prepare and post the adjustments, reconcile the adjusted trial balance, and explain later settlement.
Analyze before journalizing
| Period-end evidence | December effect | Missing accounts |
|---|---|---|
| Completed customer service; valid claim; no bill yet | Performance belongs in December | Accounts Receivable; Service Revenue |
| Completed employee service; payday is in January | Consumption and obligation belong in December | Wages Expense; Wages Payable |
Billing and payday are later administrative or settlement dates. Neither changes which period contains the stated performance or consumption.
Adjusting entries
Each entry balances independently. Neither uses Cash because the facts contain no December receipt or payment. This example assumes the amounts are known. An estimated accrual would also need a supported method, approval, and later comparison with the settled amount.
Unadjusted-to-adjusted reconciliation
| Account | Unadjusted debit | Unadjusted credit | Adjustment debit | Adjustment credit | Adjusted debit | Adjusted credit |
|---|---|---|---|---|---|---|
| Cash | $10,000 | — | — | — | $10,000 | — |
| Accounts Receivable | — | — | $4,800 | — | $4,800 | — |
| Wages Expense | — | — | $2,700 | — | $2,700 | — |
| Owners' Equity | — | $10,000 | — | — | — | $10,000 |
| Service Revenue | — | — | — | $4,800 | — | $4,800 |
| Wages Payable | — | — | — | $2,700 | — | $2,700 |
| Total | $10,000 | $10,000 | $7,500 | $7,500 | $17,500 | $17,500 |
The adjustment columns and adjusted trial balance both reconcile. Their equality does not prove the evidence or amount; those claims come from the stated performance, employee-service, and measurement facts.
Performance and financial-position effects
December revenue rises $4,800 and expense rises $2,700, so the two adjustments increase December income by $2,100. Assets rise $4,800 through the receivable, liabilities rise $2,700 through the payable, and equity rises net $2,100 through the period's revenue and expense before closing:
$4,800 asset increase = $2,700 liability increase + $2,100 equity increase
Later settlement
January collection debits Cash and credits Accounts Receivable $4,800. January payment debits Wages Payable and credits Cash $2,700. Those entries settle December positions. They do not create a second service revenue or wage expense.
Common wrong paths
- Wait for cash: This omits December performance, consumption, an asset, and a liability while leaving the unadjusted columns deceptively equal.
- Put Cash in each adjustment: No December cash event supports those lines.
- Net the entries into one $2,100 adjustment: Net income changes $2,100, but the $4,800 receivable and $2,700 payable are different rights and claims.
- Recognize again at settlement: This duplicates December revenue or expense instead of exchanging or settling balance-sheet accounts.
Verified calculation · journal entry
The curriculum loader recomputed this example before it entered the site build. Expand any structured input to inspect the stated facts.
- accounts
- 6 fields
Inspect data
{
"accounts_receivable": {
"classification": "asset",
"opening": 0
},
"cash": {
"classification": "asset",
"opening": 10000
},
"owners_equity": {
"classification": "equity",
"opening": 10000
},
"service_revenue": {
"classification": "revenue",
"opening": 0
},
"wages_expense": {
"classification": "expense",
"opening": 0
},
"wages_payable": {
"classification": "liability",
"opening": 0
}
}- entries
- 2 items
Inspect data
[
{
"label": "accrued service revenue",
"lines": [
{
"account": "accounts_receivable",
"credit": null,
"debit": 4800
},
{
"account": "service_revenue",
"credit": 4800,
"debit": null
}
]
},
{
"label": "accrued employee service expense",
"lines": [
{
"account": "wages_expense",
"credit": null,
"debit": 2700
},
{
"account": "wages_payable",
"credit": 2700,
"debit": null
}
]
}
]Recomputed result
| Measure | Value |
|---|---|
| accounts receivable | 4,800 |
| cash | 10,000 |
| ending credit balances | 17,500 |
| ending debit balances | 17,500 |
| owners equity | 10,000 |
| service revenue | 4,800 |
| total credits | 7,500 |
| total debits | 7,500 |
| trial balance difference | 0 |
| wages expense | 2,700 |
| wages payable | 2,700 |