Adjusting Entries - Điều chỉnh mục nhập

1) Depreciation
 Straight-line depreciation expense is computed using this formula:
(Depreciable Cost – Residual Value) / Estimated Useful Life

Example: BR Company purchases equipment on July 1st 20- for $60,000. Estimated useful life of 10
years and no residual value.

Jul. 1 Equipment 60,000

Cash 60,000

Adjusting entry at end of first year:

Dec. 31 Depreciation Expense 3,000

Accumulated Deprec. 3,000 (half year)

This adjusting entry leaves correct amounts on Bal. Sht. for Equipment (60,000) and Accum.
Deprec. (3,000) and correct amount on Inc. Stmt. for Deprec. Expense (3,000).

Mục nhập điều chỉnh này để lại số tiền chính xác trên Bal. Sht. cho Thiết bị (60.000) và Tích lũy.
Không dùng nữa. (3.000) và số tiền chính xác trên Inc. Stmt. cho Deprec. Chi phí (3.000).

2) Accrued Expenses

Accrued Expense is expense that has occurred but

not yet been paid or recorded at year-end. An
adjusting entry must be recorded to include this
expense in the correct period. (Expense
Recognition Principle).

Example: BR Company has weekly salaries of $5,000 which they pay each Friday for the week
completed that day. The normal entry made each Friday is:

Salary Expense 5,000

Cash 5,000

Assume the month of December 2016 ends on a Wednesday. This means employees will not be paid
until Friday Jan. 2, 2017. However, the 3 days worked in December must be included as expense in
2016.

Adjusting Entry needed on Dec. 31, 2016:

Dec. 31 Salary Expense 3,000

Salary Payable 3,000
This leaves correct amount on Bal. Sht. for Sal. Pay. (3,000) and on Inc. Stmt. for Sal. Exp. (3,000).

Then on Friday Jan. 2, 2017:

Jan. 2 Salary Expense 2,000

Salary Payable 3,000
Cash 5,000

3) Accrued Revenue

Accrued Revenue is revenue that has been earned

but not yet received or recorded at year-end. An
adjusting entry must be recorded to include this
Revenue in the correct period. (Revenue
Recognition Principle).

Example: On Nov. 1, 2016 BR Company begins work on a job that will take 6 months to
complete. The job will pay $24,000 when complete.

Adjusting entry needed on Dec. 31, 2016:

Dec. 31 Accounts Receivable 8,000

Service Revenue 8,000

This leaves correct amount on Bal. Sht. for A/R (8,000) and on Inc. Stmt. for Serv. Rev. (8,000).

Then at end of the job when BR sends invoice:

Apr. 31, 2017 Accounts Receivable 16,000

Service Revenue 16,000

And when cash is received:

Cash 24,000
Accounts Receivable 24,000

4) Prepaid Expenses
A) Prepaid Rent

Example: On Nov. 1st 2016 BR Company pays $6,000 rent on their office to cover next 6 months.

Nov. 1 Prepaid Rent 6,000

Cash 6,000

Adjusting entry needed on Dec. 31, 2016:

Dec. 31 Rent Expense 2,000
Prepaid Rent 2,000
This leaves correct amount of Prepaid Rent (current asset) on Bal. Sht. (4,000) and correct amount of
Rent Expense on Inc. Stmt. (2,000).

B) Prepaid Insurance

Example: On June 1st 2016 BR Company purchases a 1 year insurance policy for $3,600.

June 1 Prepaid Insurance 3,600

Cash 3,600

Adjusting Entry needed on Dec. 31, 2016:

Dec. 31 Insurance Expense 2,100

Prepaid Insurance 2,100

This leaves correct amount of Prepaid Insurance (current asset) on Bal. Sht. (1,500) and correct
amount of Insurance Expense on Inc. Stmt. (2,100).

Note: Supplies is also a prepaid expense.

5) Unearned Revenue

Unearned Revenue occurs when a business is paid in advance for performing a service for a
customer.

Example: BR Company is hired Dec. 1st 2016, to complete a 3 month job. The $18,000 fee for the
job is received in advance (Dec. 1).

Dec. 1 Cash 18,000

Unearned Service Revenue 18,000

Unearned Revenue accounts are current liabilities that result from revenue being received before
being earned.

Adjusting entry needed on December 31, 2016:

Dec. 31 Unearned Service Revenue 6,000

Service Revenue 6,000
This leaves the correct amount on the Bal. Sht. for Unearned Service Revenue (current liability)
12,000 and the correct amount on the Inc. Stmt. for Service Revenue 6,000.

Then, after work is completed:

Feb. 28 2017 Unearned Service Revenue 12,000

Service Revenue 12,000