ADJUSTING

ENTRIES:
Prepayments &
Accruals
NUR SHAHIDA AB FATAH

BP12103 PRINCIPLES OF ACCOUNTING

FACULTY OF BUSINESS, ECONOMICS AND ACCOUNTANCY

UNIVERSITI MALAYSIA SABAH

LEARNING OUTCOMES
At the end of this module, students should be able to:

1. Identify the types of adjusting entries.

2. Record the adjusting entries in the general journal.

3. Post (transfer) the adjusting entries in the general journal to the
ledger.
4. Prepare an adjusted trial balance.

5. Prepare the financial statements from the adjusted trial balance.

INTRODUCTION
 Accounting period assumption / Periodicity
 Accrual principle
 Matching principle
TYPES OF ADJUSTING ENTRIES

Prepayments Accruals

Prepaid Expenses Accrued Expenses

Deferred/Prepaid
Accrued Revenues
Revenues
  “An expense which has been paid in advance, the
benefits from which will be received in the next
period”

 Payment made during the current period which

PREPAID applies partly to the present period and partly to a
future period.
EXPENSE
 Only payment applies partly to the present period
should be charged against revenue for the period.

 Current asset
EXAMPLE PREPAID EXPENSES 1

 Cecelia Enterprise pays a year rental for its factory outlet of

RM24,000 by cheque on 1 May 2019. On 31 December
2019, Cecelia Enterprise has to closed its accounts to
determine profit for the year.
EXAMPLE PREPAID EXPENSES 2

General Journal
Date Transactions Amount (RM)
2019
01-May Debit Rent expenses 24,000
Credit Bank 24,000
(Paid factory outlet rental for a year)
31-Dec Debit Prepaid rent expenses 8,000
Credit Rent expenses 8,000
(To record prepaid rent expenses for 4 months)
EXAMPLE PREPAID EXPENSES 3
Debit Rent Expense Credit
Date Transaction Amount (RM) Date Transaction Amount (RM)
2019 2019
May, 1 Bank 24,000 Dec, 31 Prepaid rent expenses c/d 8,000
31 Statement of P/L 16,000
24,000 24,000

Debit Prepaid Rent Expense Credit

Date Transaction Amount (RM) Date Transaction Amount (RM)
2019 2019
Dec, 31 Rent Expense 8,000 Dec, 31 Bal c/d (SoFP) 8,000
8,000 8,000
EXAMPLE PREPAID EXPENSES 4
Trial Balance (extract) as at 31 December 2019
Account Title Workings Debit Credit
Rent Expense (24,000 - 8,000) 16,000 -

Cecelia Enterprise
Statement of Profit or Loss and Other Comprehensive Income
(extract) for the year ended 31 December 2019
Workings RM
Less:Operating expenses
Rent expenses (24,000 - 8,000) 16,000

Cecelia Enterprise
Statement of Financial Position (extract) as at 31 December 2019
Workings RM
Current asset
Prepaid rent expenses (24,000 - 16,000) 8,000
  “Receipts of payments for which goods/services
have not been provided yet”

 Revenue received for the period is greater than

that earned [the goods/service has been paid for
DEFERRED but will not be completed until the next accounting
period].
/PREPAID
 The revenue will not be realised until the next
REVENUE accounting period and, if for some reason, the
goods are not supplied or services not performed,
the amount received in advance would have to be
refunded.

 Current liability
EXAMPLE DEFERRED/PREPAID REVENUE 1

 Azroy Enterprise rent out its factory outlet to Cecelia

Enterprise. Its received rental payment from Cecelia for a
year amounted RM24,000 by cheque on 1 May 2019. Azroy
Enterprise closed its accounts on 30 June every accounting
period.
EXAMPLE DEFERRED/PREPAID REVENUE 2

General Journal
Date Transactions Amount (RM)
2019
01-May Debit Bank 24,000
Credit Rent revenue 24,000
(Rent revenue for a year)
30-Jun Debit Rent revenue 20,000
Credit Prepaid rent revenue 20,000
(To record prepaid rent revenue for 10 months)
EXAMPLE DEFERRED/PREPAID REVENUE 3

Debit Rent Revenue Credit

Date Transaction Amount (RM) Date Transaction Amount (RM)
2019 2019
June, 30 Prepaid rent revenue c/d 20,000 May, 1 Bank 24,000
30 Statement of P/L 4,000
24,000 24,000

Debit Prepaid Rent Revenue Credit

Date Transaction Amount (RM) Date Transaction Amount (RM)
2019 2019
June, 30 Bal c/d (SoFP) 20,000 June, 30 Rent Revenue 20,000
20,000 20,000
EXAMPLE DEFERRED/PREPAID REVENUE 4
Azroy Enterprise
Trial Balance (extract) as at 30 June 2019
Account Title Workings Debit Credit
Rent Revenue (24,000 - 20,000) - 4,000

Azroy Enterprise
Statement of Profit or Loss and Other Comprehensive Income
(extract) for the year ended 30 June 2019
Workings RM
Add: Other income
Rent expenses (24,000 - 20,000) 4,000

Azroy Enterprise
Statement of Financial Position (extract) as at 30 June 2019
Workings RM
Current liability
Prepaid Rent Revenue (24,000 - 4,000) 20,000
  “An expense for which the benefit has been
received but which has not been paid for by
the end of the period”
ACCRUED
EXPENSE  Amount paid for the period is less than the
expense incurred for the period.

 Current liability
EXAMPLE ACCRUED EXPENSES 1

 Selly Trading use dropship agent to sell its products. Selly

pays the commission of RM500 per month to its dropship
agent by cheque. However, when Selly has to close its
accounts on 31 December 2019, Selly owed its dropship
agent 3 months commission.
EXAMPLE ACCRUED EXPENSES 2

General Journal
Date Transactions Amount (RM)
2019
31-Dec Debit Commission expense 1,500
Credit Accrued commision expense 1,500
(To record 3 months commission owed)
EXAMPLE ACCRUED EXPENSES 3
Debit Commission Expense Credit
Date Transaction Amount (RM) Date Transaction Amount (RM)
2019 2019
Dec, 31 Bank 4,500 Dec, 31 Statement of P/L 6,000
Accrued commission exp c/d 1,500
6,000 6,000

Debit Accrued Commission Expense Credit

Date Transaction Amount (RM) Date Transaction Amount (RM)
2019 2019
Dec, 31 Bal c/d (SoFP) 1,500 Dec, 31 Commission Expense 1,500
1,500 1,500
EXAMPLE ACCRUED EXPENSES 4
Selly Trading
Trial Balance (extract) as at 31 December 2019
Account Title Workings Debit Credit
Commission Expense (4,500 + 1,500) 6,000 -

Selly Trading
Statement of Profit or Loss and Other Comprehensive Income
(extract) for the year ended 31 December 2019
Workings RM
Less: Operating expenses
Commission Expense (4,500 + 1,500) 6,000

Selly Trading
Statement of Financial Position (extract) as at 31 December 2019
Workings RM
Current liability
Accrued Commission Expense (500 x 3) 1,500
  “Revenues or income that was due to be
received by the end of the period, but which
has not been received by that date”
ACCRUED  Revenue has been earned but not yet received
REVENUE [the goods/service has been completed but not
receive the revenue (payment from customer)].

 Current asset
EXAMPLE ACCRUED REVENUE 1

 The accounting period for Praveen IT ended on 31

December each year. Praveen IT Services do the
maintenance services on a flight navigation software for
Jeju Air with the fee charged per month is RM3,000. The
finance department of Praveen IT reported fee earned from
Jeju Air on 31 December 2019 had amounted RM33,000.
EXAMPLE ACCRUED REVENUE 2

General Journal
Date Transactions Amount (RM)
2019
31-Dec Debit Accrued fee revenue 3,000
Credit Fee revenue 3,000
(To record accrued fee revenue for 1 month)
EXAMPLE ACCRUED REVENUE 3
Debit Fee Revenue Credit
Date Transaction Amount (RM) Date Transaction Amount (RM)
2019 2019
Dec, 31 Statement of P/L 36,000 Dec, 31 Bank 33,000
31 Accrued fee revenue c/d 3,000
36,000 36,000

Debit Accrued Fee Revenue Credit

Date Transaction Amount (RM) Date Transaction Amount (RM)
2019 2019
Dec, 31 Fee Revenue 3,000 Dec, 31 Bal c/d (SoFP) 3,000
3,000 3,000
EXAMPLE ACCRUED REVENUE 4
Praveen IT Services
Trial Balance (extract) as at 31 December 2019
Account Title Workings Debit Credit
Fee Revenue (33,000 + 3,000) - 36,000

Praveen IT Services
Statement of Profit or Loss and Other Comprehensive Income
(extract) for the year ended 31 December 2019
Workings RM
Fee revenue (33,0000 + 3,000) 36,000

Praveen IT Services
Statement of Financial Position (extract) as at 31 December 2019
Workings RM
Current asset
Accrued Fee Revenue (3,000 x 1) 3,000
THANK YOU.