BAT4M - Adjusting Entries, Continued

Textbook

Be familiar with these parts of the textbook that match what we will cover during the next few classes:

• Adjusting Entries: page 156
• Closing Entries: page 206
• Reversing Entries: page 231

Last Class

Here are the solutions from last class's problem.

Reminder

This spreadsheet compares the difference between declining balance and straight-line amortization.

Adjusting Entries

Detailed Definition

Accrual basis accounting means that a business will recognize revenue that has been earned, but not yet received, and claim expenses incurred, but not yet paid. The accounting term “accrued expense” means an expense which has been incurred during the accounting period but has not been paid or recorded.

Terminology

• Accrued revenues are revenues that have been earned in this year but the customer will not be invoiced for payment until the next year. A temporary current asset is created when the adjusting entry is recorded.
• Accrued expenses are expenses that have been incurred but the invoice will not be received until the next year. A temporary current liability is created when the adjusting entry is recorded.

Process

1. Calculate the amount of the revenue earned or expense incurred from the last time money was paid/received up to the year-end date.
2. Make the adjusting entry to record the revenue or expense.

More Uses

Adjusting Entry	Account Debited	Account Credited
Recording salaries for one month that will not be paid until later.	Salaries Expense	Wages/Salaries Payable
Paying salaries that were earned last month but not paid until now.	Wages/Salaries Payable	Bank
Recording interest revenue that was earned during a time period but will not be paid until later.	Accrued Interest	Interest Revenue
Receiving payment of interest that was earned in an earlier time period.	Bank	Accrued Interest
Recording depreciation of a fixed asset.	Amortization/Depreciation Expense	Accumulated Amortization/Depreciation
Writing off bad (uncollectible) debts.	Bad Debt Expense	Accounts Receivable
Recording the insurance expense for a time period.	Insurance Expense	Prepaid Insurance
Recording revenue that was paid in advance.	Bank	Unearned Revenue
Recording the consumption of office supplies.	Supplies Expense	Office Supplies

Practice Exercise

C.I.S. Company

• Instructions
• Worksheet

Resources

Accrued Revenues and Expenses

Depreciation