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Adjusting Entries in Accounting – Introduction

Adjusting Entries are journal entries that are made at the end of the accounting period, to adjust
expenses and revenues to the accounting period where they actually occurred. Generally
speaking, they are adjustments based on reality, not on a source document. This is in sharp
contrast to entries during the accounting period (such as utility bills or fees for services rendered)
that depend on source documents.

Preparing adjusting entries is a key step in the ongoing accounting cycle, coming right after
you’ve completed preparing a trial balance.

Types of Adjusting Entries


There are five basic types of adjusting entries:

 Accrued revenues (also called accrued assets) are revenues already earned but not yet
paid or recorded.
 Unearned revenues (or deferred revenues) are revenues received in cash and recorded as
liabilities prior to being earned.
 Accrued expenses (also called accrued liabilities) are expenses already incurred but not
yet paid or recorded.
 Prepaid expenses (or deferred expenses) are expenses paid in cash and recorded as
assets prior to being used.
 Other adjusting entries include depreciation of fixed assets, allowances for bad debts,
and inventory adjustments.

Examples of Adjusting Entries


By their nature, all adjusting entries will involve a pairing of either an asset or liability account
with a revenue or expense account. Here are some typical examples of adjusting entries of each
type mentioned above:

 Accrued revenues — Say your company provided $1,600 worth of consulting services to
the Bogus Manufacturing Company over the past month, and today is the end of the
accounting period. The consulting hours will be billed and collected next month, well
past when you’ll be preparing a trial balance, financial statements, closing entries, etc. In
this case, you need an adjusting entry to account for the unbilled services:

Adjusting Entry Debits Credits


Accounts Receivable 1,600.00
Consulting Fees Earned 1,600.00

 Unearned revenues — Bogus Manufacturing Company purchased an annual service


contract from you for $24,000, which they paid up front. If only three months of their
contract are within this accounting period, then that means nine months of the contract’s
revenues are unearned. In order to properly reflect reality, you need an adjusting entry:

Adjusting Entry Debits Credits


Unearned Revenue 18,000.00
Revenue 18,000.00

 Accrued expenses — If you pay weekly salaries and the accounting period ends mid-
week, you have accrued salary expenses that you haven’t yet paid. You’ll need an
adjusting entry to reflect the as-yet unpaid salaries:

Adjusting Entry Debits Credits


Salary Expense 7,200.40
Wages and Salaries Payable 7,240.40

 Prepaid expenses — Let’s say you paid $3,000 for your property insurance six months
ago, and you still have six paid months remaining on the policy after this accounting
period. To accurately reflect the value and expense of the remaining policy, you need an
adjusting entry:

Adjusting Entry Debits Credits


Property & Casualty Expense 1,500.00
Prepaid Insurance 1,500.00

 Other adjusting entries — Your company purchased $1 million of manufacturing


equipment two years ago, and according to your depreciation schedule it has depreciated
by $350,500 this accounting period. To ensure that your balance sheet doesn’t overstate
the equipment’s value, you need an adjusting entry:

Adjusting Entry Debits Credits


Depreciation Expense 350,500.00
Accumulated Depreciation –
350,500.00
Equipment

Journal Entries of Dividends

>> August 29, 2012


Dividend is the source of income of shareholders when they invest money in shares for gaining the
dividend. On the other hand, when company declares the dividend for shareholder, it will be the
deduction of its net profit. For transferring dividend out of net profit, we make the profit and loss
appropriation account.

Following are the journal entries of dividends

1. When dividend is proposed by company out of net profit.

Profit and Loss Appropriation Account Debit

Proposed Dividend Account Credit

2. When Proposed dividend is paid by Company

Proposed Dividend Account Debit

Bank Account Credit

3. When Dividend is Declared Out of Retained Earning

Retained Earning Account Debit

Dividend Account Credit

4. When Such Dividend is Paid

Dividend Account Debit

Bank Account Credit

Q: How do you record retained earnings in the journal?

A: Earnings means profits and retained earnings is all the net profits one accumulated. Also known as
accumulated profit.

Anyway, I think what you are referring to is the transfer of net profit at the end of the year to retained
earnings. If so, these are the journal entries...
If you made a profit for the year, the profit and loss account would have a credit balance. So you:

Dr Profit and loss account


Cr Retained earnings

If, however, the business made a loss for the year, the profit and loss account would have a debit
balance. So you do the opposite:

Dr Retained earnings
Cr Profit and loss account

Notice how the retained earnings gets the balance on the same side as what was for the profit and loss
account? If there was a credit balance in profit and loss (profit), then there ends up being a credit
balance in retained earnings.

how advance tax paid in current year also taken to provision for income
tax A/C in the same year??

1, advance tax paid in current year (ex::2014)means::: advance tax a/c dr

TO bank a/c

2.. the end of the current year (ex:2014) we will self assesed and make provision for income
tax::

p&l a/c dr

To provision for incometax a/c

3..in the next year (ex: 2015)if the selff assesed and income tax dept assesment is same means :::

provision for income tax a/c dr

to advance tax a/c