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ADJUSTING ENTRIES

ACCRUED - The word accrue is used for both income and expenses.

 When services are rendered but money is not received , then we use word to accrue
income it.
 Like wise when expense is incurred but money not paid , we say accrue expenses.

1 a ) ACCRUED REVENUES
Example : Till year end as of June 30 .2020 . five students did not pay fee for previous semester .
The IBA CFO will make adjusting entry to accrue this income which is earned but not yet
received to IBA

Adjusting Entry

Account Receivable from Student Dr ( different terminology like debtors Dr)

Income Cr ( or say accrued income

1 b ) ACCRUED EXPENES
Expenses incurred but not yet recorded at the statement date are accrued expenses

Example :

 ABC Corporation did not receive electricity expenses bill for year end . The estimated
cost Rs 30 000

Adjusting Entry

Expenses Dr 30 000

Payable Cr 30 000

2-Prepaid Expenses ( its an assets )

Example :

Paid office rent Rs 2000 pm for 12 month on Jan 1 , 2020

Journal entry Jan 1,2020

Pre-paid Rent ( assets ) Dr 24 000
Cash ( assets ) Cr 24 000
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Adjusting entry MARCH 31 ,2020

Rent expenses Dr Rs 6000
Prepaid Rent Cr 6000

If we make balance sheet on March 31 Prepaid Rent on Balance Sheet will be Rs 18000.

3- Un-earned revenue or income ( it’s a liability )

Example : We gave office portion to another party on rent basis . Recovered whole year rent in
advance say Rs 3000 pm on jan1, 2020

Journal entry Jan 1,2020

Cash ( assets ) Dr 36 000
Un-earned income ( liability ) Cr 36 000

Adjusting entry MARCH 31 ,2020

Un-earned income ( liability ) Dr Rs 9000
Rent Income Cr 9000
If we make balance sheet on March 31 Un- earned Rent on Balance Sheet will be Rs 27000 and
will be shown as liability

4- Depreciation

Example :

On jan 1 , 2019 ---we purchased a machine or Rs 400 000—life 5 years and depreciation
at straight line method -
 Journal entry _-- Machine Dr 400 000
Cash Cr 400 000

Depreciation per year 400 000/5 = 80 000

Dec3 1, 2019 Adjusting entry

Depreciation Dr 80 000
Allowance for Depreciation Cr 80 000

If we make balance sheet on Dec 31 ,2019– what will be amount of Machine

BALANCE SHEET
Machine cost 400 000
Less Allowance for depreciation (80 000)
Book value 320 000
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