ADJUSTING TH E ACCOUNTANTS

Learning Objective 1: Explain the accrual basis of accounting and the reasons for adjusting entries
Accrual-Basis Accounting and Adjusting Entries
Time period (or periodicity) assumption:
Accountants divide the economic life of a business into artificial time periods.
Accrual basis (kế toán dung tích) ghi nhận theo thực tế phát sinh

Fiscal and Calendar Years

• Accounting time periods are generally a month, a quarter, or a year
• Monthly and quarterly time periods are called interim periods.
• Most large companies must prepare both quarterly and annual
financial statements.
• Fiscal Year = Accounting time period that is one year in length.
• Calendar Year = January 1 to December 31.
• Sometimes a company’s year-end will vary from year to year,
resulting in accounting periods of either 52 or 53 weeks.

Accrual-Basis Accounting
• Transactions are recorded in the periods in which the events occur.
• Companies recognize revenues when they perform services (rather than when they receive cash).
• Expenses are recognized when incurred (rather than when paid).
• Accrual-basis accounting is in accordance with IFRS.

Cash-Basis Accounting
• Revenues are recorded when cash is received.
• Expenses are recorded when cash is paid.
• Cash-basis accounting is not in accordance with IFRS
The Need for Adjusting Entries
• Adjusting entries ensure that the revenue recognition and expense recognition principles are followed
• Required every time a company prepares financial statement
• Will include one income statement account and one statement of financial position account.
Related exercise material: BE3.1, DO IT! 3.1, E3.1, E3.2, and E3.3.

Cash-basis net income

Rev 108000
Expenses 72000
Net income 36000

Accrual-basis net income

Rev 119000
Expenses 84000
Net income 35000

Learning Objective 2: Prepare adjusting entries for deferrals

E3.5
Annual Adjusting Entries
Dr Cr
Interest Expenses 300
Interest Payable 300
Supplies expenses 1550
Supplies 1550
Depriciation Expenses 1000

Accumulated
Depriciation - Equip 1000

BE3.9
Adjusted trial Balance
Share Capital - Ordinary 16400
Dividend 7000
Service Revenue 39000
S&W 16000
Depriciation Expense 1300

Income Statement
Revenue
Service Revenue 39,000
Expense
S&W 16,000
Insurance Expense 2,000
Rent Expense 4,000
Supplies Expense 1,500
Depriciation Expense 1,300
Total expense 24,800
Net income 14,200

BE3.10
Retained Earnings Statement
Beginning Retained Earnings 7,240
Add: Net income 14,200
Less: Dividends 7,000
Retained Earnings 14,440
BE3.11
Trial Balance
Supplies Expense 28000
Service Revenue 92000

Adjusted entries
Supplies 4000
Supplies Expense 4000
Service Revenue 30000
Unearned Rev 30000

E3.5
Adjusting entries
Interest expense 300 Hwang borrowed NT$10,000 by signing a 9%, one-year note on September 1, 2020
Interest payable 300
Supplies Expense 1550 A count of supplies on December 31, 2020, indicates that supplies of NT$900 are on hand
Supplies 1550
Depriciation Expense 1000 Depreciation on the equipment for 2020 is NT$1,000
Accumulated Depriciation _Equipment 1000
Insurance expense 1225 Hwang paid NT$2,100 for 12 months of insurance coverage on June 1, 2020
Prepaid insurance 1225
Unearned Service Rev 8000 On December 1, 2020, Hwang collected NT$32,000 for consulting services to be performed from
Service Rev 8000 December 1, 2020, through March 31, 2021.
AR 4200 will be bill -> AR
SR 4200
S&W Expense 5400
S&W Payable 5400

E3.6
E3.7
Depriciation Expense 1200
Accumulated Depriciation - Equipment 1200
Unearned rent revenue 3400
Rent revenue 3400
Interest expense 500
Interest Payable 500
Supplies expense 2050
Supplies 2050
Insurance expense 900
Insurance Payable 900

E3.8
Account Receivable 785
Service Revenue 785
Utility expense 650
Utilities Payable 650
Depriciation Expense 400
AD - Equipment 400
Interest Expense 500
Interest Payable 500
Insurance Expense 2000
Prepaid Insurance 2000
Suuplies Expense 1200
Supplies 1200

E3.9
Supplies Expense 2000
Supplies 2000
Insurance Expense 120
Prepaid Insurance 120
Depriciation Expense 50
AD - equipment 50
Unearned Service Rev 600
Service Rev 600
AR 360
Service Rev 360
Interest Expense 95
Interest Payable 95
S&W expense 1625
S&W Payable 1625

E3.10
Insurance Expense 500
Prepaid Insurance0 500
Supplies Expense 950
Supplies 950
Depriciation Expense 150
AD - Equip 150
S&W Expense 400
S&W Payable 400
AR 650
Service Rev 650
Bjorn ASA
Income Statement
For the month Ended July 31
Revenue
Service Revenue 6150
Expense
S&W Expense 2700
 Supplies Expense 950
Utilities Expense 600
Insurance Expense 500
Depriciation Expense 150
Total Expense 4900
Net income 1250

E.13
Interest Expense 100
Interest payable 100
Supplies Expense 5400
Supplies 5400
Rent Expense 900
Prepaid Rent 900
S&W Expense 3100
S&W Payable 3100
Depriciation Expense 500
AD - Building 500
Unearned Service Revenue 4700
Service Revenue 4700
Maintenance and Repairs Expense 2300
Account Payable 2300

E3.16
Utility Expense 425
Utility Payable 425
S&W Expense 2000
S&W Payable 2000
Interest Expense 400
Interest Pâyble 400
AR 300
Service Revenue 300
AR 6000
 Rent Revenue 6000

Date Account Tittles Dr Cr

1-Jan Interest Payable 400
Cash 400
2-Jan Cash 6000
Account Receivable 6000
4-Jan S&W Payable 2000
S&W Expense 1500
Cash 3500
Cash 300
AR 300
11-Jan Utility Payable 425
Cash 425

E3.17
Adjusting Entries
AR 2400
Service Revenue 2400
Supplies Expense 1600
Supplies 1600
Unearned Service Revenue 1100
Rent Revenue 1100
S&W Expense 1100
S&W Payable 1100
Insurance Expense 1500
Prepaid Insurance 1500
Depriciation Expense 900
AD - Equip 900

E3.18
Matusiak OAO
Income Statement
For the Year Ended August 31, 2020
Revenue
Service Revenue 36400
Rent Revenue 12100
Total Revenue 48500
Expense
S&W Expense 18100
Supplies Expense 1600
Rent Expense 15000
Insurance Expense 1500
Depriciation Expense 900
Total Expense 37100
Net income 11400

Matusiak OAO
Retained Earings
For the year Ended August 31, 2020
Retained Earnings, Sep 1, 2019 3000
Add: Net income 11400
Retained Earnings, Aug 31, 2020 14400

Matusiak OAO
Financial position
For the year Ended August 31, 2020
Assets
Cash 10400
Account Receivable 11200
Supplies 700
Prepaid Insurance 2500
Equipment 14000
Less: Accumualte Depirication E 4500 9500
Total Assets 34300
Equity and Liabilities
Equity
Share Capital - Ordinary 12600
Retained Earnings 14400 27000
Liabilities
AP 5800
S&W Payable 1100
Unearned Service Rev 400
Total Liabilities 7300
Total Equity and Liabilities 34300

E3.19
Journal Entries
Cash 8000
AR 8000
Unearned Service Revenue 25000
Service Revenue 25000
Cash 38000
Unearned SR 38000
Unearned Service Revenue 21000
Service Revenue 21000
AR 115000
Service Revenue 115000
Cash 99000
AR 99000
cash received 145000

E3.20
Insurance Expense
Prepaid Insurance
Service Rev
Unearned SR
Supplies Expense
Supplies
E3.21
Journal
Prepaid Insurance 1920
Cash 1920
Supplies 1700
Cash 1700
Cash 6100
Unearned Service Revenue 6100
Adjusting entries
Unearned Service Revenue 2100
Service Revenue 2100
Supplies Expense 1050
Supplies 1050

P3.1
Date Account Tittles Dr Cr
31-May Supplies Expense 900
Supplies 900
31-May Utilities Expense 250
AP 250
Insurance Expense 150
Prepaid Insurance 150
Unearned Service Rev 1600
SR 1600
S&W Expense 1104
S&W Payable 1104
Deprication expense 190
AD-Equip 190
AR 1700
SR 1700
SR
Date Explaination Ref Debit Credit Balance
31-May Balance check 9500
Adjusting J4 1600 1600
Adjusting J4 1700 3300

Adjusted Trial Balance

Account Tittles Dr Cr
Cash 4500
AR 7700
Supplies 1000
Prepaid Insurance 3450
Equipment 11400
AP 4750
Unearned SR 400
S-O 18700
SR 12800
S&W Expenses 7504
Rent Expense 900
Utilities Expense 250
Insurance Expense 150
S&W Payable 1104
Supplies Expense 900
Deprication expense 190
AD-Equip 190
37944 37944