Kế toán, kiểm toán - Chapter 3: Adjusting the accounts

1 Chapter 3 Adjusting the accounts Appendix 3A: An alternative method of recording deferrals 2 1. Prepare adjusting entries for prepaid expenses originally recorded in an expense account 2. Prepare adjusting entries for unearned revenues originally recorded in a revenue account Learning objectives 3 Prepare adjusting entries for prepaid expenses originally recorded in an expense account Learning objective 1 4 ▪Until now we have recorded prepaid expenses as a debit to an asset account such as Prepaid Expense and a credit to Cash ▪However, prepaid expenses can initially be recorded in the related expense account ▪The adjusting entry will differ depending on whether the initial payment was recorded as an asset or an expense ▪Each method produces the same ending balances Prepaid expenses initially recorded as expense 5 Example: ▪Paid $360 for an insurance premium ▪At the end of the accounting period $10 had expired so is recorded in the Insurance Expense account ▪$360 - $10 = $350 remains in the Prepaid Insurance account at the end of the accounting period Prepaid expenses initially recorded as expense 6 Prepaid expenses initially recorded as expense Initial payment: Adjusting Entry: 7 Initial payment recorded as an ASSET Dec. 1 Prepaid Insurance 360 Cash 360 Initial payment recorded as an EXPENSE Dec. 1 Insurance Expense 360 Cash 360 Initial payment recorded as an ASSET Dec. 31 Insurance Expense 10 Prepaid Insurance 10 Initial payment recorded as an EXPENSE Dec. 31 Prepaid Insurance 350 Insurance Expense 350 Prepaid expenses initially recorded as expense Initially recorded as an ASSET Initially recorded as an EXPENSE General ledger accounts: 8 Prepaid Insurance No. 142 Date Description Debit Credit Bal. Dec. 1 Payment 360 360 Dr 31 Adjusting 10 350 Dr Prepaid Insurance No. 142 Date Description Debit Credit Bal. Dec. 1 31 Adjusting 350 350 Dr Insurance Expense No. 542 Date Description Debit Credit Bal. Dec. 1 31 Adjusting 10 10 Dr Insurance Expense No. 542 Date Description Debit Credit Bal. Dec. 1 Payment 360 360 Dr 31 Adjusting 350 10 Dr Remember: ▪The ending balance of each account is exactly the same under both methods Prepaid expenses initially recorded as expense 9 Prepare adjusting entries for unearned revenues originally recorded in a revenue account Learning objective 2 10 ▪Until now we have recorded the receipt of cash for unearned revenues as a debit to Cash and a credit to the liability account, Unearned Revenues ▪However, unearned revenues can initially be recorded in a revenue account ▪The adjusting entry will differ depending on whether the initial receipt was recorded as a liability or as revenue ▪Each method produces the same ending balances Unearned revenues initially recorded as revenue 11 Example: ▪Received $900 for services to be provided in the future ▪At the end of the accounting period $600 revenue was earned so is recorded in the Revenues account ▪$900 - $600 = $300 remains in the Unearned Revenues account at the end of the accounting period Unearned revenues initially recorded as revenue 12 Unearned revenues initially recorded as revenue Initial payment: Adjusting Entry: 13 Initial payment recorded as a LIABILITY Dec. 1 Cash 900 Unearned Revenue 900 Initial payment recorded as REVENUE Dec. 1 Cash 900 Revenues 900 Initial payment recorded as a LIABILITY Dec. 31 Unearned Revenue 600 Revenues 600 Initial payment recorded as REVENUE Dec. 31 Revenues 300 Unearned Revenue 300 Unearned revenues initially recorded as revenue Initially recorded as a LIABILITY Initially recorded as REVENUE General ledger accounts: 14 Unearned Revenue No. 230 Date Description Debit Credit Bal. Dec. 1 Payment 900 900 Cr 31 Adjusting 600 300 Cr Unearned Revenue No. 230 Date Description Debit Credit Bal. Dec. 1 31 Adjusting 300 300 Cr Revenues No. 400 Date Description Debit Credit Bal. Dec. 1 31 Adjusting 600 600 Cr Revenues No. 400 Date Description Debit Credit Bal. Dec. 1 Payment 900 900 Cr 31 Adjusting 300 600 Cr Remember: ▪The ending balance of each account is exactly the same under both methods Unearned revenues initially recorded as revenue 15