ADJUSTING

ENTRIES
 TIME PERIOD
CALENDAR

ANNUAL/YE
ARLY
FISCAL
PERIOD

MONTHLY
INTERIM

QUARTERLY

SEMI -
ANNUAL
 CASH AND ACCRUAL BASIS OF
ACCOUNTING
ACCRUAL BASIS CASH BASIS
REVENUE EARNED RECEIVED
EXPENSE INCURRED PAID
 MATCHING PRINCIPLE
Directs a company to report an expense on its
income statement in the period in which related
revenues are earned.
ADJUSTING
ENTRIES
These are Journal Entries made on the last day of an
accounting period to ensure that accounts are in line
wuth the accrual method of accounting and the
matching principle.
ADJUSTING
ENTRIES
Adjusting entries affect one real account and at least
one nominal account. Further, it should be noted that
not all entries that the company records at end of an
accounting period are adjusting entry.
 Accounts Unadjusted Trial Adjusting Entries Adjusted Trial
Balance Balance
Debit Credit Debit Credit Debit Credit
Cash
Receivable
Prepayments
Inventories
BALANCE
PPE
SHEET
Intangible
Liabilities
Capital/Equit
y
Income
INCOME
Expenses STATEMENT
 TYPES OF ADJUSTING ENTRIES

1 2 3
ACCRUED ACCRUED DEFERRED
REVENUES EXPENSES REVENUES

4 5 6
DEFERRED DEPRECIATION DOUBTFUL
EXPENSES ACCOUNTS
 ADJUSTING ENTRIES
Adjustments

Paid
Paid (or
(or received)
received) cash
cash before
before expense
expense (or
(or Paid
Paid (or
(or received)
received) cash
cash after
after expense
expense (or
(or
revenue)
revenue) recognized
recognized revenue)
revenue) recognized
recognized

Prepaid
Prepaid (Deferred)
(Deferred) Unearned
Unearned Accrued
Accrued Accrued
Accrued
expenses*
expenses* (Deferred)
(Deferred) expense
expense revenues
revenues
revenues
revenues
 PREPAYMENTS
Cash is paid before expense is recognized

1. On December 1, 2020, Young Company paid 24,000 to cover rentals for

December 2020 to May 2021.

Journal Entries
Asset Method (Accrual) Expense Method(Cash Basis)
Prepaid Rent 24,000 Rent Expense 24,000
Cash 24,000 Cash 24,000
Adjusting Entry
Rent Expense 4,0000 Prepaid Rent 20,000
Prepaid Rent 4,000 Rent Expense 20,000
 24,000
24000 x 1/6
20000
4,000
used
unused
 PREPAYMENTS
Cash is paid before expense is recognized

1. On December 1, 2020, Old Company purchased 30,000 worth of supplies. On

December 31, a count of supplies indicated 5,000 on hand

Journal Entries
Asset Method (Accrual) Expense Method(Cash Basis)
Prepaid Supplies 30,000 Supplies Expense 30,000
Cash 30,000 Cash 30,000
Adjusting Entry
Supplies Expense 25,000 Prepaid Supplies 5,000
Prepaid Supplies 25,000 Supplies Expense 5,000
 30,000

25000
used
5000
unused
DEPRECIATION
process of computing expense from allocating
the cost of plant and equipment over their
expected useful lives
 DEPRECIATION
On January 1, 2020, Mars Inc. purchased
equipment for 55,000 cash. The equipment
has an estimated useful life of 5 years and
Mars expects to sell the equipment at the end
of its life for 5,000 cash.
Let’s record depreciation expense for the year
ended December 31, 2020.

2020 55,000 - 5,000

Depreciation = = 10,000
Expense 5
 DEPRECIATION

Dec. 31 Depreciation Expense 10,000

Accumulated Depreciation - Equipment 10,000
To record equipment depreciation
 UNEARNED REVENUES
Cash is received before revenue is recognized

1. On December 1, 2020, Andi Company received 24,000 to cover rentals for

December 2020 to May 2021.
Journal Entries
Liability Method (Accrual) Revenue Method(Cash Basis)
Cash 24,000 Cash 24,000
Unearned Rent Revenue Rent Revenue 24,000
24,000
Adjusting Entry
Unearned Rent Revenue 4,000 Rent Revenue 20,000
Rent Revenue 4,000 Unearned Rent Revenue
20,000
 24,000
24000 x 1/6
20000
4,000
earned
unearned
 ACCRUED EXPENSES
Cash is paid after expenses is incurred

Barton, Inc. pays its employees every Friday. Year-end,

12/31/2020, falls on a Wednesday. As of 12/31/07, the
employees are earning salaries of 60,000 for Monday to
Friday. Last pay Next pay
date date
12/26/20
12/1/20 12/31/20 Record
Record adjusting
adjusting
Year end journal
journal entry.
entry.
 ACCRUED EXPENSES
Cash is paid after expenses is incurred

Salaries Expense 36,000

Salaries Payable 36,000

To accrue 3 days salaries of employees

60,000/5 = 12,000
12,000 x 3 = 36,000
 ACCRUED REVENUES
Cash is received after revenue is earned

Smith
Smith && Jones,
Jones, had
had 36,000
36,000 ofof work
work
completed
completed but
but not
not yet
yet billed
billed to
to clients.
clients. Let’s
Let’s
make
make the
the adjusting
adjusting entry
entry necessary
necessary onon
December
December 31,
31, 2020.
2020.

Accounts Receivable 36,000

Service Revenue 36,000

To accrue revenue earned