4 Adjusting Entries

Date created Jul 19, 2020 309 PM

Exported to Anki

Chapter 4 Exercises Clarifications, Chapter 4 Exercises

Lectures/Modules Recitation

Status

Subject ACFAR1130

Year level /
1st year 1st sem
Semester

Other reference: JCD's Hairy Potter book

Self test questions

Accrual Basis

in addition: GAAP requires that a business uses this principle

REMEMBER!!! Hindi mahalaga if this is a 90 day note, 75 day note, 120 day
note

Among the financial statements, which is NOT prepared on the accrual

basis of accounting?
Cash flow statement

What is the concept of the accrual basis?

The effects of transactions are recognized(or recorded) when they occur
and NOT when cash is received or paid.
recorded when INCOME is earned and EXPENSES are incurred

Cash Basis

What is the concept of the cash basis?

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 The accountant does not record a transaction until cash is received or
paid. Bale, outflow of cash is treated as EXPENSES while inflow is
REVENUES

What is the difference between operating cash receipts and

disbursements?
Cash basis income

Periodicity Concept

What is the process of going out of business or yung deds na?

Liquidation

What is the assumption of the periodicity concept?

For a timely information, accountants divide the economic life of a
business into accounting periods → month, quarter or year→ most basic
accounting period is 1 year

Different accounting periods used

 Fiscal year

period of any 12 months

 Calendar year

annual period ending on December 31

 Natural year

a 12-month period that ends when business activities are at

their lowest level of the annual cycle

A period of less than a year is called?

interim period

Recognition and Derecognition As per 2018 Conceptual Framework)

What is the process of recording an item that meets the definition of

ALCRE for inclusion on the statement of financial position or the statement of
financial performance?

recognition

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 What do you call the amount at which an ALCRE is recognized in the
balance sheet?
carrying amount

What is the process of removal of all or part of a recognized asset or

liability from an entity's balance sheet bec it no longer meets the def of
ALCRE?

derecognition

Adjusting Entries

Why do we need to do AJE?

to reflect in the accounts info on economic activities that have occurred
but have not yet been recorded
to change the current account balances into the correct balances for the
proper reflection in the FS

What are the types of adjustments?

DEFERRALS

Definition

postponement of the recognition of "an expense already paid but

not yet incurred" or of the "revenue already collected but not yet
earned"
it is an adjustment that deals with an amount already recorded

Types of deferrals

Pre-payments

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 Pre-collections(Unearned Revenue)

ACCRUALS

Definition

recognition of "an expense already incurred but unpaid" or

"revenue earned but uncollected"
it is an adjustment that deals with an amount unrecorded

Types of accruals

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 Accrued Revenue

income already earned but not yet collected

Accrued Expenses

What do you call the charge in return for the money you
borrowed?

interest (expressed at annual rates)

Formula: PRT Principal x Interest Rate x Length of Time)

DEPRECIATION

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 under PPE, isa lang ang hindi nag ddepreciate, ano ito?
Land, since it does not lose its usefulness over time, therefore, it
APPRECIATES instead

PROVISION FOR UNCOLLECTIBLE ACCOUNTS

Methods

Percent of Sales Method

How do you find the net realizable value?

AR - ADA = Net Realizable Value or Amortized Cost

also check book for actual process

Depreciation of PPE

Why do we need depreciation?

When an entity acquires PPE(initially recorded as asset), it is basically pre-

paying for the usefulness bec it generates income for the business.
THEREFORE, when it depreciates over time, yung portion na nagamit
should be recorded as expense.

What do you call the amount allocated to any one accounting period?

depreciation or dep. expense

It is used to record reductions in a related account and its normal balance

is opposite that of the related account?

contra-account

What do you call the contra-asset account that is associated with the
recording of dep expense?

accumulated depreciation

Three factors involved in computing dep. expense

What do you call the amount an entity paid to acquire the depreciable
asset?

Asset cost or historical cost

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 What do you call the amount that the asset can probably be sold for at
the end of its estimated useful life?

estimated salvage value

What do you call the estimated number of periods that an entity can
make use of the asset?

estimated useful life

This is the simplest procedure used for computing dep. exp.

straight-line method

What is the unexpired portion of the PPE at the end of the year after the
updated accu dep for a certain year is reduced from the original cost?
Book value aka net book value or net utility value

Formula: Book Value = Original Cost - Accumulated Depreciation

👍Objective evidence of impairment until Aging of Receivables (nasa

reviewer ni kuya Marc Angelo Sanchez)

Allocating revenues received in advance to revenues

What is the concept of unearned revenues?

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 When an entity accepts advance payments from customers even before
the service is performed, thus, leading to the entity having the liability na
i-perform ang service.

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