Professional Documents
Culture Documents
Adjusting Entries
- Journal entries usually made at the end of an accounting period to allocate income and
expenditure to the period in which they actually occurred
- An entry in a company's general ledger that occurs at the end of an accounting period to record
any unrecognized income or expenses for the period
Matching Principle
- Income and expenses matches with the proper period
- Expenses (representing the effort of the business) should be matched against the income
(representing the accomplishment of the business) during the period it was earned
Accrual basis
- Income is recognized as earned at the time service is rendered regardless of when cash is
collected
- Expense is recognized as incurred at the time service is received or used up regardless of when
cash is paid
Adjusting Entry:
Expense xx
Prepaid Expense xx
Adjusting Entry:
Prepaid Expense xx
Expense xx
Adjusting Entry:
Unearned Income xx
Income xx
Adjusting Entry:
Income xx
Unearned Income xx
3. Accrued Expense
- Refers to expenses incurred but not yet paid
- Considered as liability
Adjusting Entry:
Expense xx
Accrued Expense xx
4. Accrued Income
- Refers to income earned but not yet received or collected
- Considered as an asset (receivable)
Adjusting Entry:
Accrued Income xx
Income xx
5. Depreciation
- The systematic allocation of the cost of the property over its estimated useful life
- Recognizing part of the asset as an expense because of its decreasing utility value
- Salvage Value (also called Scrap Value) is the amount that an asset is expected to be
sold at the end of its estimated useful life
- Depreciation Expense is shown in the income statement as part of expenses
Formula:
cost−scrap value ,if any
=depreciation
useful life(¿ years)
Or
Cost of the property xx
Less: salvage value xx
Depreciable cost xx
Divided by: estimated useful life xx
Annual depreciation xx
- Accumulated Depreciation is shown in the balance sheet as a reduction from the
corresponding aset to get its net book value
Formula:
asset cost−accumulated depreciation=net book value
Adjusting Entry:
Doubtful Accounts Expense xx
Allowance for Doubtful Accounts xx
Adjusting Entry:
Merchandise Inventory xx
Income and Expense Summary xx