ACC1002/ACC1701

Tutorial Class
Week 5

Tutor: GUO, Kai

guok@u.nus.edu
Overview of Accounting Cycle
Why do we make adjusting entries?
Accrual Basis:
Recognizes revenues when earned. (Cash collected ?)
Recognizes expenses when incurred. (Cash paid ? )
Example:
On Dec 1 2018, FastForward paid $2,400 for insurance for 2 years (24 months).
FastForward recorded the expenditure as an asset Prepaid Insurance on
December 1. Nov 30 2020
?

Dec 1 2018 Dec 31 2018 Dec 31 2019 Dec 31 2020 Dec 31 2021

Dec 1 Prepaid Insurance 2,400

Cash 2,400
Dec. 31 Insurance Expense 100
Prepaid Insurance 100
To record first month's expired insurance
Why do we make adjusting entries?
? Nov 30 2020

Dec 1 2018 Dec 31 2018 Dec 31 2019 Dec 31 2020 Dec 31 2021

Dec. 31 Insurance Expense 100

Prepaid Insurance 100
To record first month's expired insurance

When?

Which accounts?

Adjusting entries never involve cash.

How about cash?
Any transaction involving cash is a business
transaction that must be recorded immediately.
How to make adjusting entries?
Revenue

Expense

Cash received Cash received

(paid) first (paid) later

Receivable
Step 1: decide the income Revenue
statement account.

Step 2: decide the balance

Expense
sheet account.
Payable
Page 167:S3-14

How many transactions ? Which one calls for adjusting entries?

How many transactions ? Which one calls for adjusting entries?

Page 181:S3-63A

4500

Cash received Cash received

(paid) first (paid) later

Revenue

Expense
Page 181:S3-63A
Cash received Cash received
(paid) first (paid) later

** ($6,200 × 2/5) = $2,480

Revenue

Expense

Friday Tuesday Friday

6,200
Page 181:S3-63A

Cash received Cash received

(paid) first (paid) later

Revenue
Supplies
B.Bal $2,500
Expense Pur $6,300 $6,700
E.Bal $2,100
Page 181:S3-63A

Cash received Cash received

(paid) first (paid) later

Revenue

Expense
Page 181:S3-64A

Cash received Cash received Dr: Accounts receivable

(paid) first (paid) later Cr: Service revenue
Dr: Rent expense
Revenue Cr: Prepaid rent
Dr: Supplies expense
Cr: Supplies
Expense Dr: Depreciation expense
Cr: Accumulated depreciation
Dr: Salary expense
Cr: Salary payable
Page 181:S3-64A
Page 181:S3-64A
 Page 192:Ethical issue 2

Right Wrong

Dr: Receivable $10,000

Nothing
Cr: Revenue $10,000
Dr: Salary expense $10,000
Cr: Salary payable $10,000 Nothing

Dr: Insurance expense $1,000

Nothing
Cr: Prepaid insurance $1,000

Revenue: 0 Revenue: 10,000

Expenses: 11,000 Expenses: 0

Profit: -11,000 Profit: 10,000

Page 192:Ethical issue 2

Right Wrong

Almond Decrease the likelihood of Improve the likelihood of getting a loan if

getting a loan lucky;
Litigation risk and reputation risk
Bank Decline the request or Toxic loan; charge an unrealistically low
charge a higher interest interest rate
rate