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    Chapter 8 Adjusting Entries

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    This document discusses adjusting entries in accounting. It defines adjusting entries as entries made prior to preparing financial statements to update accounts so they reflect correct balances as of a designated time. The purpose is to record unrecorded income and expenses for the period and split mixed accounts into real and nominal elements. Real accounts are permanent balance sheet accounts while nominal accounts are temporary income statement accounts. Mixed accounts have both real and nominal components and require adjustment. The document also discusses different methods for initially recording income and expenses and includes an example problem.

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    Chapter 8 Adjusting Entries

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    609 views11 pages
    This document discusses adjusting entries in accounting. It defines adjusting entries as entries made prior to preparing financial statements to update accounts so they reflect correct balances as of a designated time. The purpose is to record unrecorded income and expenses for the period and split mixed accounts into real and nominal elements. Real accounts are permanent balance sheet accounts while nominal accounts are temporary income statement accounts. Mixed accounts have both real and nominal components and require adjustment. The document also discusses different methods for initially recording income and expenses and includes an example problem.

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    Chapter 8 Adjusting Entries(2)

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    This document discusses adjusting entries in accounting. It defines adjusting entries as entries made prior to preparing financial statements to update accounts so they reflect correct balances as of a designated time. The purpose is to record unrecorded income and expenses for the period and split mixed accounts into real and nominal elements. Real accounts are permanent balance sheet accounts while nominal accounts are temporary income statement accounts. Mixed accounts have both real and nominal components and require adjustment. The document also discusses different methods for initially recording income and expenses and includes an example problem.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    609 views11 pages

    Chapter 8 Adjusting Entries

    Uploaded by

    BLANK
    This document discusses adjusting entries in accounting. It defines adjusting entries as entries made prior to preparing financial statements to update accounts so they reflect correct balances as of a designated time. The purpose is to record unrecorded income and expenses for the period and split mixed accounts into real and nominal elements. Real accounts are permanent balance sheet accounts while nominal accounts are temporary income statement accounts. Mixed accounts have both real and nominal components and require adjustment. The document also discusses different methods for initially recording income and expenses and includes an example problem.

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 11

    FINANCIAL ACCOUNTING

    &
    REPORTING
    (Fundamentals)

    ZEUS VERNON B. MILLAN


    Chapter 8: Adjusting Entries (FAR by:
    Millan)
    Chapter 8
    Adjusting Entries

    Learning Objectives
    1. Enumerate the common end-of-period
    adjustments.
    2. Prepare adjusting entries.

    Chapter 8: Adjusting Entries (FAR by:


    Millan)
    Adjusting entries

    • Adjusting entries are entries made prior to


    the preparation of financial statements to
    update certain accounts so that they reflect
    correct balances as of the designated time.

    Chapter 8: Adjusting Entries (FAR by: Millan)


    Purpose of adjusting entries

    a. To take up unrecorded income and expense


    of the period.
    b. To split mixed accounts into their real and
    nominal elements.

    Chapter 8: Adjusting Entries (FAR by: Millan)


    Real, Nominal and Mixed Accounts
    a. Real Accounts (Permanent accounts) – accounts that are
    not closed at the end of the accounting period. These
    accounts include all balance sheet accounts, except the
    “Owner’s drawings” account.
    b. Nominal Accounts (Temporary accounts) – accounts that
    are closed at the end of the accounting period. These
    accounts include all income statement accounts, drawings
    account, clearing accounts and suspense accounts.
    c. Mixed accounts – accounts that have both real and
    nominal account components. These accounts are subject
    to adjustment.

    Chapter 8: Adjusting Entries (FAR by: Millan)


    Chapter 8: Adjusting Entries (FAR by: Millan)
    Methods of Initial Recording of Income

    1. Liability method – under this method, cash


    receipts from items of income are initially credited
    to a liability account. At the end of the period, the
    earned portion is recognized as income while the
    unearned portion remains as liability.
    2. Income method – under this method cash receipts
    from items of income are initially credited to an
    income account. At the end of the period, the
    unearned portion is recognized as liability while
    the earned portion remains as income.
    Chapter 8: Adjusting Entries (FAR by: Millan)
    Methods of Initial Recording of Expenses

    1. Asset method – under this method cash disbursements


    for items of expenses are initially debited to an asset
    account. At the end of the period, the incurred portion
    (‘used up’ or ‘expired’) is recognized as expense while
    the unused portion remains as asset.
    2. Expense method – under this method, cash
    disbursements for items of expenses are initially
    debited to an expense account. At the end of the
    period, the unused portion (‘not yet incurred’ or
    ‘unexpired’) is recognized as asset while the incurred
    portion remains as expense.
    Chapter 8: Adjusting Entries (FAR by: Millan)
    APPLICATION OF CONCEPTS
     

    PROBLEM 2: FOR CLASSROOM DISCUSSION

    Chapter 8: Adjusting Entries (FAR by: Millan)


    OPEN FORUM
    QUESTIONS????
    REACTIONS!!!!!

    Chapter 8: Adjusting Entries (FAR by:


    Millan)
    END

    Chapter 8: Adjusting Entries (FAR by:


    Millan)

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