Professional Documents
Culture Documents
Principles
Second Canadian Edition
Weygandt · Kieso · Kimmel · Trenholm
Prepared by:
Carole Bowman, Sheridan College
CHAPTER
Revenues expenses
earned are offset incurred in
this month against.... earning the
revenue
ACCRUAL BASIS OF
ACCOUNTING
Adheres to the
Revenue recognition principle
Matching principle
Revenue recorded
only when cash
received.
Expense recorded
only when cash
paid.
ADJUSTING ENTRIES
HAPPEN!
ILLUSTRATION 3-3
TRIAL BALANCE
Pioneer Advertising Agency
Trial Balance
October 31, 2002
Debit Credit
Cash $ 15,200
Advertising Supplies 2,500
Prepaid Insurance The Trial Balance 600
Office Equipment 5,000
Notes Payable
is analysed to $ 5,000
Accounts Payable determine the 2,500
Unearned Revenue need for adjusting 1,200
C.R. Byrd, Capital 10,000
C.R. Byrd, Drawings entries. 500
Service Revenue 10,000
Salaries Expense 4,000
Rent Expense 900
$ 28,700 $ 28,700
ADJUSTING ENTRIES
Prepayments
1. Prepaid Expenses — Expenses paid in cash
and recorded as assets before they are used or
consumed.
2. Unearned Revenues — Revenues received in
cash and recorded as liabilities before they are
earned.
TYPES OF ADJUSTING ENTRIES
Accruals
1. Accrued Revenues — Revenues earned but not
yet received in cash or recorded.
2. Accrued Expenses — Expenses incurred but
not yet paid in cash or recorded.
TYPES OF ADJUSTING ENTRIES
Estimates
1. Amortization — Allocation of the cost of
capital assets to expense over their useful
lives.
PREPAYMENTS
Adjusting Entries
Prepaid Expenses
Asset Expense
Unadjusted Credit Debit
Balance Adjusting Adjusting
Entry (-) Entry (+)
Unearned Revenues
Liability Revenue
Debit Unadjusted Credit
Adjusting Balance Adjusting
Entry (-) Entry (+)
ACCRUALS
Accrued Revenues
Asset Revenue
Debit Credit
Adjusting Adjusting
Entry (+) Entry (+)
Accrued Expenses
Expense Liability
Debit Credit
Adjusting Adjusting
Entry (+) Entry (+)
AMORTIZATION
7. Prepare 5. Journalize
financial and post
statements adjusting
6. Prepare
adjusted trial entries
balance
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