Chapter 3

Accrual accounting concepts

Adjusting Entries - Accruals

©2016 John Wiley & Sons Australia, Ltd

 Learning objectives

After studying this presentation, you should be able

to:
1. Prepare adjusting entries for accruals.
 Types of adjusting entries

Accruals:
1. Accrued revenues: Amounts not yet received
and recorded for which goods or services have
been provided.
2. Accrued expenses: Amounts not yet paid or
recorded for goods or services already received.
 Adjusting entries for accruals

• Accruals may be either:

a. accrued revenues
b. accrued expenses.
 Adjusting entries for accruals

• Accrued revenues are revenues earned from

providing goods or services that have not as yet been
recorded.
• Revenue and receivable are recorded for revenue not
received and not recorded.
• Once cash is received, receivable is reduced.
 Adjusting entries for accruals

• Example:
– Commission Revenue earned, but not yet received
or recorded – $200.
– Journal entry:

– General Ledger:
 Adjusting entries for accruals

• Accrued expenses are expenses not yet paid or

recorded at balance date.
1. Accrued interest:
– Accrued interest owing on loan of $5000.
– Interest rate: 12% p.a.
– Interest owing for one month:
• $5000 x 12% x 1/12 = $50
 Adjusting entries for accruals

– Journal entry:

– General Ledger:
 Adjusting entries for accruals

2. Accrued Salaries:
– Salaries outstanding for October:
• $1200 (3 days x $400)
 Adjusting entries for accruals

– Journal entry:

– General Ledger:
Summary of basic relationships