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Adjusting Journal Entries

This tutorial covers how to account for adjustments to accounts at the end of a fiscal period. These adjustments are made because of time and usage of assets.
by

Mary Collins

on 20 September 2013

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Transcript of Adjusting Journal Entries

Adjusting Journal Entries
Always start with the trial balance at the end of the current fiscal period
Adjustments are made to:
Prepaid Assets used during the fiscal period.
Advance payments for sales or services that have been earned during the fiscal period.
Accrued assets recognized at the end of the month, such as last minute billing
Accrued liabilities such as bills received at the end of the month, but these bills are not due until the following month.
Prepayments:
Prepaid Expenses
Unearned Revenues
Depreciation

Accruals:
Accrued Revenues
Accrued Expenses
Types of Adjustments
Types of Adjustments:
Prepaid Expenses
Unearned Revenues
Depreciation
Prepayments
Prepaid Expense Original Journal Entry
June 30, 2006 Love Thy Pet Inc,. paid $19,200 cash to the rental company for the next 12 months rent.
Prepaid Expenses Original Ledger Entries
June 30, 2006 Love Thy Pet Inc,. paid $19,200 cash to the rental company for the next 12 months rent.
Prepaid Expense Adjusting Journal Entry
December 31, 2006 Adjusted the amount of rent used during the period between June 30 and December 31.
19,200 X 6/12 = 9,600
Prepaid Expenses Adjusting Ledger Entries
December 31, 2006 Adjusted the amount of rent used during the period between June 30 and December 31.
19,200 X 6/12 = 9,600
Unearned Revenue Original Journal Entry
June 28, 2006 Received $5,000 cash for two bulldogs to be delivered within the next year by a breeder.
Unearned Revenue Original Ledger Entries
June 28, 2006 Received $5,000 cash for two bulldogs to be delivered within the next year by a breeder.
Unearned Revenue Adjusting Journal Entry
December 31, 2006 Record revenues earned during the past six months. One of the bull doges was delivered by the breeder
Unearned Revenue Adjusting Ledger Entries
December 31, 2006 Record revenues earned during the past six months. One of the bull doges was delivered by the breeder
Depreciation Original Journal Entry
June 6, 2006 Love Thy Pet Inc,. purchased office equipment for $15,000 cash with an estimated usefully life of 5 years. The residual value of the equipment is expected to be $3,000.
Depreciation Original Ledger Entries
June 6, 2006 Love Thy Pet Inc,. purchased office equipment for $15,000 cash with an estimated usefully life of 5 years. The residual value of the equipment is expected to be $3,000.
Depreciation Adjusting Journal Entry
December 31, 2006 Record depreciation for office equipment. Time period is June 6, 2006 to December 31, 2006. Love Thy Pet uses the straight-line method of depreciation.
$15,000 – 3,000 = 12,000 / 5 = 2,400 X 7/12 = 1,400
Depreciation Adjusting Ledger Entries
December 31, 2006 Record depreciation for office equipment. Time period is June 6, 2006 to December 31, 2006. Love Thy Pet Inc,. uses the straight-line method of depreciation.
$15,000 – 3,000 = 12,000 / 5 = 2,400 X 7/12 = 1,400
Accruals
Types of Adjustments:
Accrued Revenues
Accrued Expenses
Accrued Revenue Original Journal Entry
June 1, 2006 The Hatfield Company borrowed $10,000 for Love Thy Pet Inc,. The note is for 1 year and has an interest rate of 6%.
Accrued Revenue Original Ledger Entries
June 1, 2006 The Hatfield Company borrowed $10,000 for Love Thy Pet Inc,. The note is for 1 year and has an interest rate of 6%.
Accrued Revenue Adjusting Journal Entry
December 31, 2006 Record the accrued interest for the Hatfield Company’s Notes receivable. The time period is from June 1, 2006 to December 31, 2006. Use the simple interest method.
10,000 X .06 = 600 X 7/12 = 350
Accrued Revenue Adjusting Ledger Entries
December 31, 2006 Record the accrued interest for the Hatfield Company’s Notes receivable. The time period is from June 1, 2006 to December 31, 2006. Use the simple interest method.
10,000 X .06 = 600 X 7/12 = 350
Accrued Expense Salary Expense Calendar for December 20XX
Paydays almost never fall on the last day of the month. At the end of each month, payroll expense has to be recognized for the number of days employee worked. These days of work have not yet been paid because it is not yet the employees payday.
Accrued Expense Adjusting Journal Entry
December 31, 2006 Two employees are paid in total $800 each bi-weekly to be paid evenly over a 5 day work week for a period of two weeks. What would be the accrued expense for employees salaries?
800 X 2 = 1600 X 9/10 = 1440
Accrued Expense Adjusting Ledger Entries
December 31, 2006 Two employees are paid in total $800 each bi-weekly to be paid evenly over a 5 day work week for a period of two weeks. What would be the accrued expense for employees salaries?
800 X 2 = 1600 X 9/10 = 1440
This is the entry to create a prepaid expense, which will than be used up during a fiscal period or periods.
This is the journal entry to recognize the amount used up during the fiscal period.
This type of journal entry occurs when a customer prepays for either sales or services that will be delivered at a later date in time.
This is the journal entry to record the amount of service or sales that has be finished or delivered at the end of the current fiscal period.
This is the journal entry to record the purchase of a asset that has a long life span.
This journal entry is to allocate the original cost of the asset over its useful life span.
This is the journal entry to recognized the interest revenue earned from loaning money or credit to a customer.
Preparing Adjusting Journal Entries, posting to the ledger accounts, and preparing a adjusted trial balance.
Steps 5, 6, and 7 in the Accounting Cycle
Handouts can be located at the following website:
https://people.cnm.edu/personal/mcollins/index.htm
Full transcript