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    Adjusting Entries - Reviewer

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    Peter Jonathan Obiano
    1) Adjusting entries are necessary to follow the accrual basis of accounting and ensure revenues and expenses are recorded in the proper period. They include entries for deferrals like prepaid expenses and unearned revenues, as well as accruals like accrued revenues and expenses. 2) Common adjusting entries debit an expense or credit a revenue account to record expenses incurred or revenues earned but not yet recorded. Entries also credit an asset or debit a liability account to record prepaid expenses or unearned revenues. 3) After all adjusting entries are made, an adjusted trial balance is prepared to prove the equality of debit and credit balances and ensure financial statements reflect complete and up-to-date activity for the period.

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    Adjusting Entries - Reviewer

    Uploaded by

    Peter Jonathan Obiano
    660 views2 pages
    1) Adjusting entries are necessary to follow the accrual basis of accounting and ensure revenues and expenses are recorded in the proper period. They include entries for deferrals like prepaid expenses and unearned revenues, as well as accruals like accrued revenues and expenses. 2) Common adjusting entries debit an expense or credit a revenue account to record expenses incurred or revenues earned but not yet recorded. Entries also credit an asset or debit a liability account to record prepaid expenses or unearned revenues. 3) After all adjusting entries are made, an adjusted trial balance is prepared to prove the equality of debit and credit balances and ensure financial statements reflect complete and up-to-date activity for the period.

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    1) Adjusting entries are necessary to follow the accrual basis of accounting and ensure revenues and expenses are recorded in the proper period. They include entries for deferrals like prepaid expenses and unearned revenues, as well as accruals like accrued revenues and expenses. 2) Common adjusting entries debit an expense or credit a revenue account to record expenses incurred or revenues earned but not yet recorded. Entries also credit an asset or debit a liability account to record prepaid expenses or unearned revenues. 3) After all adjusting entries are made, an adjusted trial balance is prepared to prove the equality of debit and credit balances and ensure financial statements reflect complete and up-to-date activity for the period.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    660 views2 pages

    Adjusting Entries - Reviewer

    Uploaded by

    Peter Jonathan Obiano
    1) Adjusting entries are necessary to follow the accrual basis of accounting and ensure revenues and expenses are recorded in the proper period. They include entries for deferrals like prepaid expenses and unearned revenues, as well as accruals like accrued revenues and expenses. 2) Common adjusting entries debit an expense or credit a revenue account to record expenses incurred or revenues earned but not yet recorded. Entries also credit an asset or debit a liability account to record prepaid expenses or unearned revenues. 3) After all adjusting entries are made, an adjusted trial balance is prepared to prove the equality of debit and credit balances and ensure financial statements reflect complete and up-to-date activity for the period.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Learning objective: ADJUSTING THE ACCOUNTS - Necessary because the trial balance may not

    contain up-to-date and complete data.


    1) Explain the accrual basis of accounting and the
    - Required every time a company prepares
    reasons for adjusting entries.
    financial statements.
    2) Prepare adjusting entries for deferrals. - Will include one income statement account
    and one balance sheet account.
    3) Prepare adjusting entries for accruals,
    Deferrals – are expenses or revenues that are
    4) Describe the nature and purposes of an adjusted trial recognized at a date later
    balance.
    1) Prepaid expenses
    5) Explaining the accrual basis of accounting and the - Expenses paid in cash before they are used or
    reasons for adjusting entries. consumed
    Time Period Assumption - Examples of Prepayments are: Insurance,
    - Accountants divide the economic life of a business Supplies, Advertising, Rent, Equipment, and
    into artificial time periods Building
    - Equipment and Buildings are Fixed Assets that
    are gradually converted into expenses due to
    depreciation.
    Fiscal and Calendar years
    Adjusting Entry:
    Fiscal year
    - increase (debit) to an expense account and
    Calendar year is an accounting time period that starts
    on January 1 and ends in December 31 - decrease (credit) to an asset account.

    Accrual-Basis Accounting problem 1 - Supplies


    -Transactions recorded in the periods in which the Oct. 31 Supplies 2500
    events occur Cash 2500
    - Companies recognize revenues when they
    perform services (Rather than when they receive Supplies Expense 1500
    cash). Supplies 1500
    -Expenses are recognized when Incurred (Rather
    than paid_ problem 2 – Insurance
    - In accordance with Generally accepted
    Oct. 31 Insurance Expense 50
    accounting principle (GAAP)
    Prepaid Insurance 50
    Cash-basis accounting
    Depreciation
    - Revenues recognized when Cash is received.
    - Expenses recognized when Cash is Paid. -Buildings, equipment, and motor vehicles (assets that
    - Cash—basis accounting is not in accordance provide service for many years) are recorded as assets,
    with generally accepted accounting principles rather than an expense on the date acquired.
    (GAAP)
    -Depreciation is the process of allocating the cost of an
    asset to expense (Time Period Assumption) over its
    useful life.
    Revenue & Expense Recognition Principle
    -Two types are…
    1) Cause and effect
    Physical Depreciation
    2) Immediate
    - kakagamit
    Adjusting Entries - Exposure to the elements
    Economic Depreciation
    - Ensure that the Revenue recognition and - Obsolescence
    expense recognition principles are followed.
    Common Methods of Depreciating Trial Balance
    1) Straight-line Depreciation
    - Depreciation=cost-salvage value/estd. useful life Each account is analyzed to determine whether it is
    complete and up-to-date
    2) SYD
    To check whether the total Debit is equal to the total
    _____________________________________________ Credit.

    2) Unearned revenues Adjusted trial Balance


    - Cash received before services are performed - Prepare after all adjusting entries are journalized and
    posted.
    Example of Unearned revenue are:
    Rent, Magazine Subscriptions, Airline tickets, - Purpose is to prove the equality of debit balances and
    Customer deposits credit balances in the ledger

    Adjusting entries:
    - Results in a decrease (debit) to a liability account and
    an increase (credit) to a revenue account.
    problem 3 – Unearned revenues
    Oct. 31 Cash 1200
    Unearned Revenue 1200
    Unearned Revenue 400
    Advertising Income 400

    Accruals - are expenses or revenues that are


    recognized
    1)Accrued revenues
    Revenues for services performed but not yet received
    in cash or recorded
    _____________________________________________

    2)Accrued Expenses
    Expenses incurred but not yet paid in cash or recorded.
    See problem 4 – Accrued Interest
    Oct 31. Interest Expense 50
    Interest Payable 50
    See problem 5 – Accrued Salaries
    Oct 31. Salaries expense 1200
    Salaries Payable 1200

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