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Accruals and Adjustments

1. The document discusses adjusting entries made at the end of an accounting period to prepare the financial statements. 2. Examples given include recording prepaid expenses expired, unpaid expenses, depreciation incurred, revenue earned but not billed, and unearned revenue. 3. Formats for a 10-column and 12-column worksheet are also provided, including adjustment rules and how to record items like opening retained earnings and dividends paid.

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Nepal Bishal Shrestha
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246 views14 pages

Accruals and Adjustments

1. The document discusses adjusting entries made at the end of an accounting period to prepare the financial statements. 2. Examples given include recording prepaid expenses expired, unpaid expenses, depreciation incurred, revenue earned but not billed, and unearned revenue. 3. Formats for a 10-column and 12-column worksheet are also provided, including adjustment rules and how to record items like opening retained earnings and dividends paid.

Uploaded by

Nepal Bishal Shrestha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Accruals and Adjustments

December 2017
Financial Accounting I
Bishal Shrestha
Adjusting entries are made at the end
of an accounting period. They are
internal transactions and therefore do
not affect the cash account. Each entry
involves an adjustment to either an
assets or a liability with a
corresponding change in either
revenue or expenses.
Prepaid expenses expired Rs 1500/-.

Date Particulars PR Debit Credit


Related Expenses A/c Dr 1,500
Prepaid Expenses A/c 1,500
(T o record for prepaid expenses
expired)

Note: Information may be provided differently for


expired expenses. However, the focus should be on to
find out the amount of expenses that has been
consumed over the year.
Unpaid expenses Rs 1,120/.

Dat Particulars PR Debit Credit


e
Related Expenses A/c Dr 1,120
Related Expenses Payable 1,120
A/c
(To record unpaid expenses)
Depreciation of Rs 1,250 incurred
on Assets during the year.

Date Particulars PR Debit Credit


Depreciation Expenses A/c Dr 1,250
Accumulated Depreciation –Assets 1,250
A/c (To record for depreciation on
assets)
Revenue of Rs 550 earned but bill has
not been sent yet.

Date Particulars PR Debit Credit


Accounts Receivable A/c Dr 550
Service Revenue A/c 550
(To record for adjustment of revenue
earned but not billed.)
Unearned revenue earned to the extent of Rs
750.

Date Particulars PR Debit Credit


Unearned Revenue A/c Dr 750
Service Revenue A/c 750
(To record for unearned revenue
earned)
Closing Revenue Account

Date Particulars PR Debit Credit


Sales/Service Revenue A/c Dr Xxxx
Interest Revenue A/c Dr Xxxx xxxx
Income Summary A/c
(To close the revenue account to income
summary)
Closing Expenses Account

Date Particulars PR Debit Credit


Income Summary A/c Dr xxxx
Insurance Expenses A/c xxxx
Rent Expenses A/c xxxx
Supplies Expenses A/c xxxx
Depreciation Expenses A/c xxxx
Miscellaneous Admin Expense xxxx
A/c xxxx
Other Revenue Expenditures.. xxxx
(To close the expenses account to
income summary)
Closing Income Summary
•In case of Net Profit

Date Particulars PR Debit Credit


Income Summary A/c Dr xxxx
Retained Earnings A/c xxxx
(To close income summary
account to retained earnings)

•In case of Net Loss


Date Particulars PR Debit Credit
Retained Earnings A/c Dr xxxx
Income Summary A/c xxxx
(To close income summary
account to retained earnings)
Opening Entries

Date Particulars PR Debit Credit

Assets A/c Dr (Individually) xxxx


Liabilities A/c (Individually) xxxx
Common Stock A/c (balancing xxxx
fig)

(To open assets, liabilities and


common stock for the year)
Work Sheet Format (10 Column
Worksheet)

Unadjusted Income Balance


Particulars Adjustment Adjusted TB
TB Statement Sheet
Credi Credi
  Debit Credit Debit Debit Credit Debit Credit Debit
t t

Adjustment Rules
•Adjusted Trial Balance = Unadjusted Trial Balance + Adjustment
•Adj TB Debit = Unadjusted TB Debit + Adjustment Debit- Adjustment
Credit
•Adj TB Credit = Unadjusted TB Credit + Adjustment Credit –
Adjustment Debit
•General Rule:
• Debit Increase --- Adjustment Debit Entry
• Debit Decrease --- Adjustment Credit Entry
• Credit Increase ---- Adjustment Credit Entry
• Credit Decrease ---- Adjustment Debit Entry
Work Sheet Format (12 Column
Worksheet)

Unadjusted Adjustmen Income Retained Balance


Particulars Adjusted TB
TB t Statement Earnings Sheet
Credi Credi
  DebitCredit Debit Debit Credit Debit Credit Debit Credit Debit
t t

•Adjustment for allocation of profit such as dividend paid, opening


retained earnings, transfer to general reserves are dealt in column of
retained earnings.
• Points To Remember

– If question provides the opening retained


earnings and dividend paid for a 10-column
worksheet, the students are suggested to
transfer these items to balance sheet only, not in
income statement.

– Ten Column work sheet is prepared until and


unless specified to prepare 12 column
worksheet.

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