Adjusting Entries

1. Adjusting Entries
Presentation
PrinciplesofAccounting
Our topic

2. Group Member

3.  What is Adjusting Entries ?
 Which Accounts Need Adjustment?
 Reason for Adjustments
 Adjusting Entries Method

4. Adjusting Entries
bring certain account
balances up to date at
the end of the
accounting period.
Adjusting Entries
12/31/2010
UPDATE

5. Adjustments
Adjusting entries are required when
changes in certain accounts have not been
recorded in the accounting records.
Adjustments are
necessary for items
that have either
been deferred or
accrued.

6. Reason for Adjustments
It can be inefficient and costly to
account for certain types of
transactions on a daily basis.

7. Method
 Cash Basis of Accounting
 Accrual Basis of Accounting

8. Cash Basis of Accounting
 Under the cash basis for the accounting period
concept, revenues and expenses are reported in
the income statement in the period in which cash
is received or paid

9. Accrual Basis of Accounting
 Under the accrual basis for the accounting period
concept, revenues are reported in the income
statement the period in which they are earned.

10. Revenue reported when earned
Expense reported when incurred
Properly matches revenues and
expenses in determining net income
Requires adjusting entries at end of
period
Accrual Basis of Accounting

11. Types of Adjusting Entries
 Prepaid Expenses
 Unearned Revenue
 Accrued Revenue
 Accrued Expenses

12. The Basics of Adjusting
Entries
 Adjusting entries make it possible to
report correct amounts on the
balance sheet and on the income
statement.
 A company must make adjusting
entries every time it prepares
financial statements.

13. The Basics of Adjusting
Entries
 Revenues - recorded in the period in
which they are earned.
 Expenses - recognized in the period
in which they are incurred.
 Adjusting entries - needed to ensure
that the revenue recognition and
matching principles are followed.

14. Net Solutions
Trial Balance
December 31, 2005
1.Cash 2 065 00
2.Accounts Receivable 2 220 00
3.Supplies 2 000 00
4.Prepaid Insurance 2 400 00
5.Land 20 000 00
6.Office Equipment 1 800 00
7.Accounts Payable
900 00
8.Unearned Rent
360 00
9.Chris Clark, Capital
25 000 00
10.Chris Clark, Drawing 4 000 00
11.Fees Earned
16 340 00
12.Wages Expense 4 275 00
13.Rent Expense 1 600 00
14.Utilities Expense 985 00
15.Supplies Expense 800 00
16.Miscellaneous Expense 455 00
Unadjusted
trial balance
Unadjusted
trial balance

15. Net Solutions
Chart of Accounts
1. Assets
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Office Equipment
Accumulated Depreciation
2. Liabilities
Accounts Payable
Wages Payable
Unearned Rent
3. Owner’s Equity
Chris Clark, Capital
Chris Clark, Drawing
4. Revenue
Fees Earned
Rent Revenue
5. Expenses
Wages Expense
Rent Expense
Depreciation Expense
Utilities Expense
Supplies Expense
Insurance Expense
Miscellaneous Expense