ACTBAS2 Adjusting Entries 1.

Adjusting entries for ending merchandise inventory Pro-forma entry: Merchandise Inventory, end xxx Income Summary To record ending inventory for the period

xxx

2. Adjusting entries for accruals Accrued income – income already earned but not yet collected Accrued expense – expense already incurred but not yet paid Pro-forma entries: a. Recognition of accrued income: Accrued Income xxx Income/Revenue To accrue (specific income) for the year/period b. Recognition of accrued expense: Expense xxx Accrued Expense To accrue (specific expense) for the year/period

xxx

xxx

3. Adjusting entries for deferrals Pro-forma entries: a. Prepaid expense – expenses paid (in cash) in advance but not yet incurred i. Asset method Expense xxx Prepaid Expense xxx To recognize expired portion of prepayment ii. Expense method Prepaid Expense xxx Expense To recognize asset portion of prepayment

xxx

b. Unearned Income – income already received (in cash) in advance but not yet

earned i. Liability method Unearned Income xxx Income/Revenue xxx To recognize earned portion of revenues received in advance

Doubtful accounts is estimated 4. Balance Sheet/Statement of Financial Position approach: 1. Pro-forma entries: Doubtful Accounts/Uncollectible Accounts/Bad Debts Expense Allowance for Doubtful Accounts/etc.. Pro-forma entries: Depreciation Expense xxx Accumulated Depreciation xxx To record estimated depreciation for the year/period 5. Income Statement approach: 1. Doubtful accounts is estimated 3. Doubtful accounts is estimated as as as as a a a a certain certain certain certain percentage percentage percentage percentage of of of of sales credit sales net credit sales net sales *Write-off of worthless accounts: Allowance for Doubtful Accounts Accounts Receivable Write-off of worthless accounts xxx xxx . Income method Income/Revenue xxx Unearned Income xxx To recognize liability portion of revenues received in advance 4. To record estimated uncollectible accounts for the year/period xxx xxx EMPHASIS ON DOUBTFUL ACCOUNTS I. Adjusting entries for doubtful accounts/uncollectible accounts/bad debts Doubtful accounts expense  Estimated loss from probable uncollectible accounts. Adjusting entries for depreciation Depreciation  The systematic and rational allocation of fixed assets’ (PPE) cost over its estimated useful life. Allowance for doubtful accounts is increased by a certain percentage of accounts receivable 2.ii. Doubtful accounts is estimated 2. Allowance for doubtful accounts is estimated using a aging analysis (3-41 of your workbook) II.. Allowance for doubtful accounts is increased to a certain percentage of accounts receivable 3. Allowance for doubtful accounts is maintained 4.

.

*Subsequent recovery of previously written-off accounts: Accounts Receivable xxx Allowance for Doubtful Accounts xxx Recovery of previously written-off accounts Cash xxx xxx Accounts Receivable Collection of previously written-off accounts .

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