Unit 11-Adjusting the Books

1. Unit 11-Adjusting the Books Accounting 30S I Miss Schewczyk

2. Purpose: Adjusting the Books • Employees work overtime or earn bonuses • Changes have not been recorded by the end of the fiscal period

3. Adjusting the Books • An adjusting entry is recorded at the end of the accounting period to bring an asset or liability account and revenue or expense balance to its proper amount.

5. Prepaid Expenses • Items paid for in advance of receiving their benefits • Office supplies-current assets-unused • When used-no longer assets-change to expense

6. Prepaid Expenses • Entries are made to record the conversion of prepaid assets to expenses • To correct account balances for the balance sheet and to record the appropriate expense for the period on the income statement • These entries=adjusting entries

7. Prepaid Rent • Rental lease: • Rent of $1700 a month • Must be paid in advance for three months • April 1: cheque for $5100 is issued in payment of April, May and June rent. June April May

8. Prepaid Rent • Rent Expense is not debited • Prepaid Rent is debited

9. Prepaid Rent • End of April: • Should Prepaid Rent be shown as a current asset with a value of $5100?

10. Prepaid Rent • After one month: $1700 of asset Prepaid Rent has been used • Value of prepaid rent must be reduced ($5100-1700=$3400) $1700 $1700 $1700 June April May

11. Prepaid Rent • Value of prepaid rent must be reduced ($5100-1700=$3400) • $1700 rent used record expense • Adjusting entry

12. Prepaid Rent • Adjusting entry Apr.30 Rent Expense 1700 Prepaid Expense 1700 To record one month’s Rent Expense.