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    Adjusting Entries

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    francismaminta2496
    Adjusting Entries

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    © All Rights Reserved
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    Adjusting Entries

    Uploaded by

    francismaminta2496
    5 views18 pages
    Adjusting Entries

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    © © All Rights Reserved

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    PPTX, PDF, TXT or read online from Scribd

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    Adjusting Entries

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    5 views18 pages

    Adjusting Entries

    Uploaded by

    francismaminta2496
    Adjusting Entries

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 18

    Accounting Principles

    Adjusting
    Entries:
    Accruals
    REVENUE RECOGNITION
    PRINCIPLE
    ● The revenue recognition principle
    dictates that revenue be recognized in the
    accounting period in which it is earned.
    ● In a service business, revenue is
    considered to be earned at the time the
    service is performed.
    STUDY OBJECTIVE

    Identify the major types of adjusting entries.


    ADJUSTING ENTRIES

    ● Adjusting entries are required each


    time financial statements are prepared.
    ● Adjusting entries can be classified as
    1 prepayments (prepaid expenses or
    unearned revenues) OR
    2 accruals (accrued revenues or accrued
    expenses)
    TYPES OF
    ADJUSTING ENTRIES

    Prepayments
    1 Prepaid Expenses — Expenses paid in cash
    and recorded as assets before they are
    used or consumed
    2 Unearned Revenues — cash received and
    recorded as liabilities before revenue is
    earned
    TYPES OF
    ADJUSTING ENTRIES

    Accruals
    1 Accrued Revenues — Revenues earned but
    not yet received in cash or recorded
    2 Accrued Expenses — Expenses incurred but
    not yet paid in cash or recorded
    ILLUSTRATION 3-3
    TRIAL BALANCE

    The Trial Balance


    is the starting
    place for adjusting
    entries.
    STUDY OBJECTIVE

    Prepare adjusting entries for accruals.


    ACCRUAL VS CASH BASIS

    On March 24, Von, owner of a car repair shop, was constructed by a


    customer to repair customer’s BMW.

    On March 25, The customer brought his BMW to the shop and repair
    works were completed the same day. The repair cost P15,000.

    On March 26, Von paid the cost of repair amounting to P15,000.


    ACCRUALS

    ● The second category of adjusting


    entries is accruals.
    ● Adjusting entries for accruals are
    required to record revenues earned and
    expenses incurred in the current period.
    ● The adjusting entry for accruals
    will increase both a balance sheet
    and an income statement account.
    ILLUSTRATION 3-10
    ADJUSTING ENTRIES FOR ACCRUALS

    Adjusting Entries
    Accrued Revenues
    Asset Revenue
    Debit Credit
    Adjusting Adjusting
    Entry (+) Entry (+)
    Accrued Expenses
    Expense Liability
    Debit Credit
    Adjusting Adjusting
    Entry (+) Entry (+)
    ACCRUED REVENUES

    ● Accrued revenues may accumulate


    with the passing of time or through
    services performed but not billed or
    collected.
    ● An asset-revenue account
    relationship exists with accrued
    revenues.
    ● Prior to adjustment, assets and
    revenues are understated.
    ADJUSTING ENTRIES FOR ACCRUALS
    ACCRUED REVENUES
    ADJUSTMENT October 31, the agency earned $200
    for advertising services that were not
    billed to clients before October 31.
    JOURNAL ENTRY

    POSTING
    ACCRUED EXPENSES

    ● Accrued expenses are expenses


    incurred but not paid yet.
    ● A liability-expense account
    relationship exists
    ● Prior to adjustment, liabilities
    and expenses are understated
    ● The Adjusting Entry results in a debit
    to an expense account and a credit to a
    ADJUSTING ENTRIES FOR ACCRUALS
    ACCRUED INTEREST
    ADJUSTMENT October 31, the portion of the interest to be accrued
    on a 3-month note payable is calculated to be $50.

    JOURNAL ENTRY

    POSTING
    ADJUSTING ENTRIES FOR ACCRUALS
    ACCRUED SALARIES
    ADJUSTMENT October 31, accrued salaries
    are calculated to be $1,200.

    JOURNAL ENTRY

    POSTING
    ILLUSTRATION 3-16
    SUMMARY OF ADJUSTING ENTRIES

    1 Prepaid Assets and Assets overstated Dr.


    Expenses expenses expenses Expenses understated Cr.
    Assets
    2 Unearned Liabilities and Liabilities overstated Dr. Liabilities
    revenues Revenues understated Cr. Revenues
    revenues Assets and Assets understated Dr. Assets
    3 Accrued revenues Revenues understated Cr.
    revenues
    Revenues Expenses and Expenses understated Dr. Expenses
    4 Accrued liabilities Liabilities understated Cr. Liabilities
    Effects of the Adjusting Entries

    Make end-of-
    Journalize year
    Post entries to Prepare trial
    transactions. adjustments.
    the ledger balance.
    accounts.

    Let’s look at JJ’s Lawn Care


    Services’ adjusted trial balance.
    Prepare adjusted
    trial balance.

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