0% found this document useful (0 votes)
313 views20 pagesThe Need for Adjustment Entries
The document explains the accounting adjustment process that takes place at the end of each period to update the income and expense accounts. It includes examples of adjustment entries to record accrued income, unearned income, accrued expenses, prepaid expenses, and depreciation.
Uploaded by
ScribdTranslationsCopyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
0% found this document useful (0 votes)
313 views20 pagesThe Need for Adjustment Entries
The document explains the accounting adjustment process that takes place at the end of each period to update the income and expense accounts. It includes examples of adjustment entries to record accrued income, unearned income, accrued expenses, prepaid expenses, and depreciation.
Uploaded by
ScribdTranslationsCopyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
The Adjustment Process
Objectives
1. Explain the purpose and preparation of
the adjusted trial balance.
2. Record in the journal and transfer to the ledger
the adjustment seats.
3. Explain why they are necessary
adjustable seats
The Need for Seats of
Settings
The adjustment seats are made at the end of
each accounting period. These have as
objective to update the income accounts and
expenses to ensure they are adequate
identified the income of the period with everyone
the expenses that were generated.
The Need for Seats of
Adjustment
Each adjustment entry affects an account of the
balance sheet and one of the state of
results.
As a result, if the entry does not affect a
income or expense account is not considered
an adjustment seat.
Adjustment to the Account of
Income
There are two types of adjustments to the account of
ingresos:
• Earned income
• Unearned Revenues.
Adjustment to the Income Account
• Earned income
It is when the income is earned
(accrued) before cash is received
of the client, or that the operation is accounted for
in the accounting records. They are revenues that
they have won but have not yet collected the
corresponding cash.
Example Accrued Income
Suppose that on May 15, they hire Smart Touch to
that provides e-learning services for
a University. With this agreement, Smart Touch will gain
$800 monthly. During May, Smart Touch will earn the
half of the month's payment, $400, for the work done
from May 16 to 31. On May 31, Smart Touch makes the
next adjusting entry, to accumulate the income
gained from May 16 to May 31:
May 31 Accounts Receivable (800/2) 400
Income from Services 400
To accumulate income from services
Adjustment to the Account of
Income
• Unearned Income:
It occurs when a customer pays in advance for the
services provided. The receipt of cash before
to generate it creates a passive consisting of the provision of
a job in the future, called non-income
accrued. The company owes a product or a service to
ciente, o le tendrá que regresar su dinero.
Ejemplo Anticipo de Clientes
Suppose a law firm hires Smart
Touch to provide services for
electronic learning and offers to pay Lps. 600
monthly, starting immediately. Smart Touch
receive the first amount on May 21. Smart Touch
register the receipt of cash and a liability as
continue
May 21 Cash 600
Income from unearned services 600
Advance collection of income
Example Client Advance
The trial balance as of May 31 shows income of
unearned services with a credit balance of Lps. 600.
During the last 10 days of the month - May 21 to May 31 -
Smart Touch will earn approximately one third (10 days)
divided among 30 days) of the 600, that is, 200. Therefore Smart
Touch makes the following adjusting entry to record the acquisition.
from $200 in income
May 31 Ingresos por servicios no devengados 200
Income from services 200
To record the income from services that were charged in advance
NOTE: An unearned income is a liability, not
an income.
Adjustment to the Expense Account
There are three types of adjustments to the expense account:
• Accrued Expenses (To accrue means to incur)
that have not yet been registered or paid.
• Prepaid expenses: That were recorded
as active when they were paid.
• Distribution of the cost of a fixed asset over its
useful life through the depreciation process.
Example Accrued Expenses
Suppose that Smart Touch pays its employee
a monthly salary of Lps. 6,000 on the first day
of the following month.
On May 31, Smart Touch makes the following
adjustment seat
May 31 Expenses for Salaries 6,000
Salaries Payable 6,000
To recognize salary expenses as accrued
Prepaid Expenses
They are assets that are produced when
they make expenditures (outflows of
cash), which cover one or more
future accounting periods. Examples:
insurance payment, rent payment.
Example of Prepaid Expenses
Suppose that Smart Touch Learning pays for
three months in advance for office rent on the 1st
of May. If the lease agreement
specifies a monthly rent of Lps. 1,000, the
Seat to record the payment is:
May 1 Rent Paid in Advance 3,000
Cash 3,000
Rent paid in advance
Example of Prepaid Expenses
As of May 31, Rent paid in advance
should decrease in the amount that it has
consumed. The portion consumed is one month of
the three months paid in advance.
Remember that an asset that has expired is
an expense. The adjusting entry is:
May 31 Expense by Rent 1,000
Rent paid in advance 1,000
To record the rental expense
Depreciation
Depreciation expense is an item.
virtual because it does not represent a real disbursement
of money.
Depreciation consists of recognizing that with
the passage of time and the use given to it
certain types of assets are losing or
decreasing its value.
Active
Fixed
One tangible and long-lasting like land,
buildings and equipment - that are used in operations
de una empresa
Depreciation Example
On May 3, Smart Touch Learning
he bought furniture for Lps. 18,000 and
I make the following journal entry:
May 3 Furniture 18,000
Cash 18,000
Furniture Purchase
Ejemplo Depreciación
Smart Touch believes that the furniture will continue
being useful for five years and then not
it will have value. A way to calculate depreciation
It consists of dividing the cost of the asset (18,000) by its
expected useful life (five years). In this way, the
The depreciation for each month is 300. The expense for
Depreciation for May is recorded as follows
seat
May 31 Expense for Depreciation of Furniture 300
Accumulated depreciation of furniture 300
To record the depreciation on the furniture
Value in Books
The book value represents the costs (the life)
invested in an asset that the company has not yet
used (recognized as an expense).
The resulting net amount (cost minus depreciation
The accumulated cost of a plant asset is referred to as value.
in books. In the case of Smart Touch furniture, the
book value is:
Value in Books of Plant Assets
Furniture 18,000
Less: Accumulated Depreciation (300)
Book value of furniture 17,700
EXERCISES
P3-32A – Page 176
P3-39B - Page 182
