Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
CHAPTER 4
Adjusting the Accounts and
Preparing Financial Statements
MEASUREMENT OF PROFIT
Cash Basis
Accrual Basis
Income recognised when the anticipated inflow of
economic benefit can be reliably measured
2. Journalise transaction
Source
documents
5. Determine adjusting
General journal
General ledger
(Accounts Adjusted)
Trial balance
(Adjusted)
General journal
to general ledger
General ledger
balance
Trial balance
(unadjusted)
8. Prepare financial
6
statements
Work
sheet
Financial
Statements
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CLASSIFICATION OF ADJUSTING
ENTRIES
Deferrals
(Prepayments)
Accruals
(Unrecorded)
7
Unearned
Revenue
Prepaid
Expense
Costs/expenses
paid before they
are consumed
Accrued
Revenue
Accrued
Expense
Revenue earned
but not yet
received
Expenses incurred
but not yet paid
ADJUSTING ENTRIES
Revenue
Unearned revenue
Accrued revenue
Revenues collected in
advance, but not yet earned
e.g. magazine subscription
received in advance
$$$
Revenue
Last Year
Revenue
$$$
Next Year
Current Year
ADJUSTING ENTRIES
Expenses
Prepaid expenses
Accrued expenses
$$$
Last Year
Expense
Expense
Current Year
ASSET ACCOUNT
Prepaid Expense
$$$
Initial Cost
Debit
Next Year
Adjusting
Entry
Credit
EXPENSE ACCOUNT
Adjusting
Entry
Debit
12
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General Journal
Jun Rent Expense
30
General Journal
Jun 1 Prepaid Rent
1 200
Cash at Bank
400
Prepaid Rent
1 200
400
Rent Expense
Prepaid Rent
Initial Entry
1 200
13
Adjusting
Entry
400
Adjusting
Entry
400
14
EXAMPLE: DEPRECIATION
Non-Current Asset
Initial Cost
Debit
Contra-Asset Account
Accumulated
Depreciation
Adjusting
Entry
Credit
LIABILITY ACCOUNT
Unearned Revenue
Depreciation Expense
Adjusting
Entry
Debit
15
Adjusting
Entry
Debit
16
Adjusting
Entry
Credit
Cash Receipt
EXAMPLE: SUBSCRIPTIONS
INCOME ACCOUNT
EXAMPLE: SUBSCRIPTIONS
On 31 December 3 months of revenue has been earned
(3/12 x $264= $66)
General Journal
Dec Unearned Subscriptions Revenue
31
Subscriptions Revenue
66
66
17
Adjusting
Entry
66
18
Subscriptions Revenue
Cash
264
Adjusting
Entry
66
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LIABILITY ACCOUNT
Expense Payable
Adjusting
Entry
Credit
19
EXPENSE ACCOUNT
Adjusting
Entry
Debit
20
Expenses Incurred
General Journal
Jun Salaries Expense
30
3 980
General Journal
Salaries Payable
3 980
3 980
3 420
Cash at Bank
7 400
Salaries Expense
Adjusting
Entry
3 980
21
22
Expenses Incurred
General Journal
ASSET ACCOUNT
Accounts Receivable
Adjusting
Entry
Debit
23
INCOME ACCOUNT
Revenue
Adjusting
Entry
Credit
Revenue earned but not yet received
800
800
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25