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Adjusting Entries: Accrued Expense Accrued Income

1. There are 3 types of accounts: real, nominal, and mixed. Real accounts appear on the balance sheet, nominal accounts appear on the income statement, and mixed accounts appear on both. 2. Adjusting entries are made at the end of each accounting period to avoid overstating or understating account balances. Examples include accrued expenses/income, prepaid expenses, unearned income, depreciation, doubtful accounts, and merchandise inventory. 3. Adjusting entries involve debiting/crediting expense/income accounts and corresponding asset/liability accounts to record transactions in the proper period for accrual-basis accounting.

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125 views3 pages

Adjusting Entries: Accrued Expense Accrued Income

1. There are 3 types of accounts: real, nominal, and mixed. Real accounts appear on the balance sheet, nominal accounts appear on the income statement, and mixed accounts appear on both. 2. Adjusting entries are made at the end of each accounting period to avoid overstating or understating account balances. Examples include accrued expenses/income, prepaid expenses, unearned income, depreciation, doubtful accounts, and merchandise inventory. 3. Adjusting entries involve debiting/crediting expense/income accounts and corresponding asset/liability accounts to record transactions in the proper period for accrual-basis accounting.

Uploaded by

RyanKing
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Adjusting Entries

3 Types of Account:

1. Real (Permanent) Accounts accounts in the SFP (A = L+Oe); regardless of the period in cycle; it will always (the
balance) be there in nature.
2. Nominal (Temporary) Accounts Accounts in the I/S; balances that are not always/usually incurred in nature.
We dont accumulate the balance.
3. Mixed Accounts = (Nominal + Real) Accounts both from the SFP and I/S.
e.g. : Prepaid Expense (payee); Unearned income (receiver)

- Entries made at every accounting period to avoid the overstatement or understatement of accounts.
1. Accrued Expenses 5. Depreciation
2. Accrued Income 6. Doubtful Accounts
3. Prepaid Expenses 7. Merchandise Inventory
4. Unearned Income

Accrued Expense Accrued Income


- Expenses incurred, but unpaid for. - Income earned, but not yet received.
Adjusting Entries Adjusting Entries

__________ Expense XX __________ Receivable XX


__________ Payable XX __________ Income XX

Prepaid Expenses
- Expenses paid for, but not yet incurred.

Asset Method Expense Method

Prepaid Rent XX Rent Expense XX


Cash XX Cash XX

Adjusting Entries
Asset Method Expense Method

Rent Expense XX Prepaid Rent XX


Prepaid Rent XX Rent Expense XX
Unearned Income
- Income collected, but not yet earned.
Liability Method Income Method

Cash XX Cash XX
Unearned Service Income XX Service Income XX

Adjusting Entries
Liability Method Income Method

Unearned Service Income XX Service Income XX


Service Income XX Unearned Service Income XX

Depreciation
- Decrease in economic value of the fixed asset.

Depreciation
Cost
__(Scrap Value)__
Depreciable Amount
Depreciation Value x Fractional Year (Eg. 9/12)
Estimated Useful Life
Depreciation Value

Adjusting Entries

Depreciation XX
Accumulated Depreciation XX
Doubtful Accounts
-Bad debts / uncollectible accounts
1. Increased by __%

Allowance
Beginning Accounts Receivable, End
X = (Adjusting Entries) X %
End Bad Debts Expense

2. Increased to __%

Allowance
Accounts Receivable, End
Beginning
X % Estimated Loss
Adjusting Entries
Allowance for Bad Debts, End
X = (End)
________(Beginning Balance)
Adjustment = Bad Debts, End

3. Aging of Accounts Receivable

Accounts Receivable % Uncollectible Allowance


10,000 5% 500
20,000 8% 1,600
50,000 10% 5,000
(End) Total 7,100

Adjusting Entries

Bad Debts Expense XX


Allowance for Bad Debts XX

Merchandising Inventory, End


Adjusting Entries Purchases
Merchandise Inventory, Beg
Merchandise Inventory, End XX (Merchandise Inventory, End)
Income Summary XX Cost of Sales

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