1 / 17

9.1 Adjustment Entries

9.1 Adjustment Entries. What are adjusting entries?. It is when the account data is being brought up-to-date at statement time (also referred to as “making the adjustments”)

gyula
Download Presentation

9.1 Adjustment Entries

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. 9.1 Adjustment Entries

  2. What are adjusting entries? • It is when the account data is being brought up-to-date at statement time (also referred to as “making the adjustments”) • In most cases, an adjusting entry assigns amounts of revenue or expense to the appropriate accounting period before finalizing the books for the fiscal period

  3. Why do we need to make adjustments? • When Preparing financial statements the accountant must make sure: • All accounts are brought up to date by completing adjusting entries • All late transactions are taken into account • All calculations have been made correctly • All GAAPs have been followed

  4. Where do we record adjusting entries? • Adjusting entries are: • Recorded on the worksheet (8 column) under the ADJUSTMENTS column • Then extend and balance the worksheet • Adjusting entries are journalized and posted to the ledger with closing entries

  5. Adjustments • What kind of adjustments are there? • Supplies • Late Payments • Insurance

  6. 1. Supplies Are you going to go create a source document, and record a journal entry every time somebody goes to the supply room and takes a 10¢ pencil?? No, that would be silly and extremely wasteful of time

  7. Supplies • Supplies account is one of those accounts that is allowed to become inexact between statement dates • Therefore, supplies are recorded atpurchasecost and requires an adjustment at the end of each accounting period

  8. Example: Supplies • An organization started this year with $1480.90 of supplies. An inventory count on December 31st reveals that $954.90 was used up. Supplies * Don’t need explanations necessarily on adjustments, but for other entries we do 1480.90 Adjusting entry used up 954.90 526 Adjusting Entry: Supplies Expense 954.90 Supplies 954.90

  9. 2. Late Payments/ Invoices • Late payments or invoices happens when goods/ services are bought or expenses incurred (happen at the end of the year) at the end of the year, they must be recorded in fiscal period they apply to MATCHING PRINCIPLE • Matching principle states that each expense item related to revenue earned must be recorded in the same accounting period as the revenue it helped to earn

  10. Examples of Late Payments • Telephone Bill • Truck Repairs • Miscellaneous expense • And many more Adjusting Entry: Telephone Expense 45.00 Truck Expense 496.00 Misc. Expense 85.00 Accounts Payable 626.00

  11. 3. Prepayments • When something is paid in advance, but benefits extend post fiscal period • Examples? • Licenses • Rent • Insurance

  12. Example of Prepayment • Insurance- Cassidy Cartage buys a 1 year insurance policy , on August 1st for $816.00 Entry: Aug. 1 Prepaid Insurance 816.00 Bank 816.00 Jan. 1 Aug. 1 Dec. 31 5 Months 816.00 12 Months Cost / Term X Months Used 816/ 12 mons X 5 = $340 Adjusting Entry: Dec. 31 Insurance Expense 340.00 Prepaid Insurance 340.00 To record adjustment for insurance used

  13. Let’s Try it • Exercise #1 p. 308 (t), p. 219 (w) • Calculate the blank figures for supplies & Prepaid Insurance • Exercise #2 p. 308 (t), p. 219 (w) • Prepare the adjusting entries according to the information

More Related