中山大学会计基础lesson04-en

8.Close
Now that we have covered the trial
balance, let’s discuss adjusting
entries.
7
Why Need to Adjust
Some events are not evidenced by the obvious documents. the effects of these events are recorded at the end of the accounting period by means of adjusting entries.
End of accounting period.
Cash received
Revenues earned
Example: service revenue received in advance.
17
Adjusting Entries – Deferrals
Example: On Oct. 1, 2004, Smith Inc. signed a contract for providing a special service to Cone. Smith received $50000 for the service to be provided. At the end of 2004 half of the services have been proved to Cone. Smith should make the following entries to record earned revenue.
Type of Adjusting Entries
Accruing unrecorded revenues
Converting liabilities to revenues
Adjusting entries
Accruing unrecorded expenses
Converting assets to expenses
Prepare and explain adjusting entries for prepaid expenses, amortization, unearned revenues, accrued expenses, and accrued revenues.
Explain how accounting adjustments link to financial statements.
End of accounting period.
Revenues earned
Cash received
11
Adjusting Entries – Accruals
Example: On Jun 1, 2004, Smith Inc. invests $100,000 for a bonds which pays 5% interest per year. Smith Inc. will not receive the interest until March 31, 2005. On December 31, 2004, Smith, Inc. need to make the following entry for the interest earned so far.
4
Review: Matching Principle
Expenses are to be matched in the same accounting period as the revenues they helped to earn.

Accrual and cash basis
The accrual basis of accounting matches revenues earned with expenses incurred.
Adjustments are based on three generally accepted accounting principles:
Time period principle. Revenue recognition principle. Matching principle.
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Date
GENERAL JOURNAL
Description
Debit Credit
Dec 31 Interest Receivable
2916.67
Interest Revenue
2916.67
$100000 × 5% × 7/12 = $2916.67
record the earned interest revenue
13
Adjusting Entries – Accrued
Example: On the year-end, Dec. 31, 2004, Smith Inc.’s employees have earned total wages of $35,000 for the Monday, but Smith Inc. will not pay the wages until 5th of next month. So at the end of the accounting period, Smith need to make the following entries to accrued the wage expenses.
10
Adjusting Entries – Accruals
Accruals occur when revenues have been earned or expenses incurred but no cash has been exchanged.
Example: interest revenue earned during the period but not received until the next period.
12
Adjusting Entries – Accrued
Unrecorded expenses incurred
End of accounting period.
Expense incurred
Cash paid
Example: wages should be paid to employees during this period but not paid until the next period.
Date
GENERAL JOURNAL
Description
Debit
Credit
Dec 31 Wages Expense
35,000
Wages Payable record the wage expense
35,000
14
Adjusting Entries – Deferrals
Prepaid expense is used up
Lesson 4 Adjusting Accounts for
Financial Statement
Task Team of FUNDAMENTAL ACCOUNTING
School of Business, Sun Yat-sen University
Outline
Describe the purpose of adjusting accounts at the end of the period.
Date
GENERAL JOURNAL
Description
Debit
Dec 31 rent Expense
10,000
prepaid expense record the rent expense
Credit 10,000
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Adjusting Entries – Deferrals
Converting liabilities to revenues:
The purpose of adjusting the accounts at the end of period is to make the accounting information comparable from period to period.
8
Why Need to Adjust
Explain and prepare an adjusted trial balance.
2
Review: Time period concept
Definition: the continued life of a business is divided into time periods of equal length.
Certain circumstances require adjusting entries to record accounting estimates. Amortization is an example.
Amortization is the process of allocating the costs of assets over their useful lives.
6
Adjust: A Step in Accounting cycle
1. Analyze Transactions 2. Journalize 3. Post
4. Unadjusted trial balance 5. Adjust
6. Adjusted trial balance
7. Prepare finance statements
Dec. 31, B/S date
Dec. 31, B/S date
Last year income statement
Past period
This year income statement