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The Adjusting Process: ACG 2021 Chapter 3

This document discusses the adjusting process in accounting, which involves updating accounts prior to preparing financial statements. It covers topics like accrual accounting, adjusting entries, types of accounts requiring adjustment such as prepaid expenses, unearned revenues, accrued revenues and expenses. Examples are provided for adjusting entries related to supplies used, prepaid insurance expired, unearned fees earned, accrued wages, and depreciation expense. The accounting cycle of recording adjusting entries, preparing an adjusted trial balance and then financial statements is also summarized.

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28 views

The Adjusting Process: ACG 2021 Chapter 3

This document discusses the adjusting process in accounting, which involves updating accounts prior to preparing financial statements. It covers topics like accrual accounting, adjusting entries, types of accounts requiring adjustment such as prepaid expenses, unearned revenues, accrued revenues and expenses. Examples are provided for adjusting entries related to supplies used, prepaid insurance expired, unearned fees earned, accrued wages, and depreciation expense. The accounting cycle of recording adjusting entries, preparing an adjusted trial balance and then financial statements is also summarized.

Uploaded by

exypxy
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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The Adjusting

Process
ACG 2021 Chapter 3
Accounting period concept:
Cash basis
Revenues and expenses are reporting the
income statement in the period in which cash
is received
Accrual basis
Revenues are reported in the income
statement in the period they are earned
Revenue recognition concept
Matching concept


Adjusting Process
The updating of
accounts prior to
the preparation of
financial
statements
Adjusting entries
Adjusting Process
Effect income
statement account
and at least one
balance sheet
accounts
Debit expense
Credit
asset/liabilities
Types of Accounts requiring
adjustment
Prepaid expenses
Deferred expenses
or prepaid expenses
are items that have
been initially
recorded as assets but
are expected to
become expenses
over time or through
the normal operations
of the business.
Supplies and prepaid
insurance
Types of Accounts requiring
adjustment
Unearned revenues
Deferred revenues or unearned
revenues: are items that have been
initially recorded as liabilities but
are expected to become revenues
over time or through the normal
operations of the business. These
are deposits by customers for work
to be done in the future.
Unearned rent
Types of Accounts requiring
adjustment
Accrued revenues:
Accrued Revenues or Accrued Assets
some revenues are only recorded
when cash is received. At the end of
the accounting period, there may be
items of revenues that have been
earned but have not been recorded
Types of Accounts requiring
adjustment
Accrued expenses
Accrued expenses or accrued
liabilities are expenses that
have been incurred but have not
been recorded in the accounts.
Wages payable
Supplies
For example: the general ledger shows a balance
in the supplies account of $2,000. Inventory shows
$500 of supplies still on hand
Supplies
Balance $2,000
Inventory 500
Used up 1,500

Supplies exp $1500
Supplies $1500

Try example 1

Example 1
the general ledger shows that the
balance in the supplies account is
$4,000. An inventory is
conducted of supplies and it is
found that only $2,500 of supplies
is still on hand. Record the
adjusting entry for the use of
supplies.

Prepaid insurance
The G/L shows the balance are
$6,000. The policy was purchased
on May 1
st
for 12 months. Record
the adjusting entry on Dec 31 for
insurance expired.

$6,000/12 = 500 per month
May to Dec = 8 months x $500 =
$4,000 is expired
Prepaid insurance
Insurance exp $4,000
Prepaid insurance $4,000

Try example 2
Example 2:
the general ledger shows that the
balance in the prepaid insurance
account is $12000. The policy was
purchased on Aug 1st for 12
months. Record the adjusting
entry for the insurance expired.

Deferred revenues or
unearned revenues
Items that have been initially
recorded as liabilities but are
expected to become revenues over
time
Unearned fees liability account

Unearned fees
G/L shows that the balance in the
unearned fees account is $6,000. A
review of the entries shows that the
balance should be $2,000.

Balance $6,000
Should be 2,000
Fees earned 4,000
Unearned Fees Entry


Unearned fees $4,000
Fees earned $4,000
Try example 3:
Example 3
the general ledger shows that the
balance in the unearned fees
account is $7,000. The balance
should be $1,000. Record the
adjusting entry.

Accrued expense
Expenses that have been incurred
by have not been recorded in the
accounts

Wages

Accrued wages
Wages are paid on the second and
fourth Fridays for the two week
period. Payments were $950 on Dec
13 and $950 on Dec 27. The wages
for Monday through Thursday is $250
Record the wages due.

Wages expense $250
Wages Payable $250
Example 4:
Wages $5,000 per week. Dec 31
falls on Wed.

Wages expense $3,000
Wages payable $3,000
Accrued revenue
Revenues not billed to customers
$2,500

Accounts receivable $2,500
fees earned $2,500
Fixed Assets
Physical resources that are owned
by a business

Depreciation
Reduction in the value of an asset due
to its use.

Depreciation expense one year
reduction

Accumulation depreciation: contra
asset showing lifetime reductions
Credit increases the account
Depreciation Expense
Depreciation expense $1,000
Accumulated depreciation 1,000
Book Value
Cost of the asset - Accumulated
depreciation
Accounting Cycle
After the adjusting entries are
recorded in the journal and posted
to the general ledger, an adjusted
trial balance is prepared.
Followed by financial statements

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