Professional Program in Project Management

PRMG30: Project Budgeting & Financial Control

Course Instructor: Dr. A.Salah Awad

 Adjustment
What’s meant by Adjustment?
Adjustment is a settlement to an old account that happened in
the past and still has impact on the present and the future.

How Could it be recorded?

Adjustment always affect the old account and the balance occurs
as either a Revenue or an Expense .
The adjustment must always be balanced (The debit amount
equals to the credit amount).
Examples for Adjusted Accounts
Assets:-
• Current Assets:-
 Notes Receivable (Interest Receivable) • The balance is Revenue
 Material • The balance is Expense
 Supplies • The balance is Expense
 Inventory • The balance is Expense
 Prepaid Accounts • The balance is Expense
 Prepaid Payment (DP Paid)
• The balance is Expense
 Prepaid Rent
• The balance is Expense
 Prepaid Insurance
• The balance is Expense

• Fixed Assets:-
Building Depreciation • The balance is Expense
 Equipment Depreciation • The balance is Expense
 Furniture Depreciation • The balance is Expense
 Vehicles Depreciation • The balance is Expense
**The building value is decreasing according to the
accounting system
 Adjustment
 How can we calculate adjustment for different accounts?

1) Interest Payable\Receivable:-
Interest Expense= (The amount of loan x Interest value)
Number of noted days

The previous result is then multiplied by the number of

days calculated from the day of issuing the loan till the
day of publishing the statement.
**N.B.:-
The number of days per year are 360 and consequently, the number of days
per month are 30.
 Adjustment
 How can we calculate adjustment for different accounts?

2) Material\Supplies\Inventory:-
Material Expenses=
The amount of material at the Beginning of the account
-The amount of material at the End of the account

In another words:-
Material\Supplies\Inventory Expenses is the difference between
the beginning and the end, which is consumed during the
process of producing the service.
 Adjustment
 How can we calculate adjustment for different accounts?
3) Prepaid insurance:-

Insurance Expense= (The Insurance amount)

Insurance Policy Duration in days

The previous result is then multiplied by the number of days

calculated from the effective date of the insurance policy till
the day of publishing the statement.

**N.B.:-
The number of days per year are 360 and consequently, the number of days
per month are 30.
 Adjustment
 How can we calculate adjustment for different accounts?

4) Depreciation:-

Depreciation Expense= (Book value-Salvage value)

Number of useful years
Whereas:-
Book Value : is the Initial value of the asset
Salvage Value: is the value of the asset after it finishes the number of
useful years
Useful Years : are the number of years were the owner can use his asset
and take all the benefits from it.

**N.B.:-
Depreciation in accounting is applied always by using the straight line method
Depreciation is calculated annually
 Adjustment
 How can we calculate adjustment for different accounts?

5) Accrual:-

Accrual is and adjustment account where all expenses that

have not been yet paid or recorded in the books can go
under this account. This account is to be settled later “in any
following month that follows the month of preparing the
Adjusted-Statements”.
Example of Accrual:-
Unpaid Salaries
Unpaid Utilities Bills
Unpaid Wages
Unpaid Rent
 Adjustment
 How can we calculate adjustment for different accounts?

6) Unearned Revenue:-

Earned Revenue= The amount of money received

The period of time to execute the work

The previous result is then multiplied by the number of

months calculated from the day of receiving the money till
the day of publishing the statement.
 Adjustment
 From all previously shown we can see that most of the
accounts have a quite distinguished reflection of increase
in expenses and hence decrease of Income.

 This means that adjustment gives realistic values to profit

occurs or loss incurs on the business at the time of
preparing the financial statements.

 Adjustment is the final step before releasing the

statements, which are at this step called “Adjusted-
Statements”.
 Examples on Adjustment
1) Jan.2nd, Rents an office, paying two months rent, $800,
in advance.

2) Jan.3rd, Purchase a truck on credit by $28000, has an

estimated life of 5 years and a salvage value of $4000
at the end of that period, this is to be depreciated by
the straight line method .

3) Jan.6th, Purchases supplies, $2,800, from Taylor

Supplies company on credit (at the end of the period it
shows that $600 are on hand)
 Examples on Adjustment
4) Jan.8h, Pays for a one-year life insurance policy, $480,
with coverage effective January 1st.

5) Jan15th, Accepts an advance fee, $1,000, As a whole job

fee for artwork to be done within four weeks, for
another agency.

6) Jan20th, Borrowed $3600 from the bank and issued a

30 days note for 10% interest
 Solution for Previous Adjustments
**Statement Date is January 31st (30th as all months are always 30 days)

1) Rent Expenses = 800 (Rent Value) = 400 x one month = $400

2(no. of months)

2) Truck Dep.Exp.= 28000-4000= 400 x one month = $400

5

3) Supplies Expenses= 2800-600= $2200 “consumed during the

statement period”
 Solution for Previous Adjustments
**Statement Date is January 31st (30th as all months are always 30 days)

4) Insurance Expenses = 480 (Insurance Value) = 1.33

360(Ins. Policy Duration 12monthsx30days)
= 1.33 x 30 days(Jan30-Jan1“effective date”)= $40

5) Job Revenue= $1000 (the amount received)= 250 x Two weeks = $500
4 weeks(period to execute the work)

6) Interest Payable Expenses= 3600x10%(Interest)= 12

30( Note’s days)
= 12 x 10 days (Jan30-Jan20)=$120
 Adjustments
Important tips before recording Adjustment:-

 The adjustment must always be balanced (the debit amount is

equals to the credit amount).

 The adjustment has to be recorded twice, one time in the old

account and the balance in whether expenses or revenue account

 It is more preferable to open a new separate depreciation and

interest accounts to preserve the principle amount of the asset and
the loan.
 Trial Balance Adj.no Adjustment Adjusted Trial Balance

Assets Accounts title Dr. Cr. Dr. Cr. Dr. Cr.

101 Cash 6520 6520

102 Prepaid rent 800 1 400 400

103 prepaid ins. 480 4 40 440

104 Supplies 2800 3 2200 600

105 A\R 3600 3600

151 Vehicles 28000 28000

152 Accumulated Vehicle Dep. 2 400 400

153 Art equip 4200 4200

155 Off. Equip 3000 3000

 Trial Balance Adj.no Adjustment Adjusted Trial Balance

Liabilities Accounts title Dr. Cr. Dr. Cr. Dr. Cr.

201 A/P 31300 31300

202 Unearned Revenue 1000 5 500 500
203 Accrual 200 200
204 N/P 3600 3600
205 Interest payable 6 120 120

Owners equity:-
301 Capital 10000 10000
401 Withdrawals 1400 1400
501 Revenue 5000 5 500 5500
601 utility exp. 100 100
602 teleph exp. 200 200
603 Rent exp. 1 400 400
604 Dep.exp. 2 400 400
605 Supplies exp 3 2200 2200
606 Ins.exp. 4 40 40
607 Interest payable exp 6 120 120

51100 51100 3660 3660 51620 51620

 Adjustments
After finishing recording the adjustments and preparing the new
amounts of all the accounts, here we can approach the end of the
process of preparing the Adjusted-Statements .
(Income Statement-Owners’ Equity Statement- Balance Sheet
Statement).

The same statements’ format, as what was explained in the Debit

and Credit Lecture, BUT the numbers this time will be taken and
posted from the final column of the previous two slides’ table
under the name of adjusted trial balance.

Statements are now ready to get published!

 Adjustments

## It’s now time to give it a try with assignment no.4

Good Luck!