CHAPTER 3: ADJUSTING ENTRIES

– LECTURE NOTES

truongthihanhdung@uel.edu.vn
096.672.4386
 IDEAS OF THE LECTURE
• Purposes of lecture: From practice back to theory
• PRACTICE:
- Identify some odd transactions in the normal period.
• IMPLIED THEORY: why practice so? Because we have to
comply:
1/Time period assumption (calendar year vs fiscal year)
2/ Accrual basis vs Cash basis
3/ Revenue recognition principle (new – with performance
obligations)
4/ Expenses recognition principle.
 Why do we have to set and apply all the theories from 1 to 4?
 Opening for the lecture
• There are some ODD transactions that operate in speacial ways,
different with the others as follows:
- The transactions lie/incur/prolong in two or more years (it means:
they are not ended in 1 year).
- But the duties of the accountants are: to find the income/expenses
incurred for each year alone (fiscal year: nam tai chinh) (we don’t
confuse/misuse/include/combine the income and expenses from
years to years)
---- To those transactions, we need apply ADJUSTING ENTRIES (BUT
TOAN DIEU CHINH) to find the accurate income/expenses for each
fiscal year AT THE YEAR END (NORMALLY, DEC 31, BUT IN COULD
CHANGE BY CASES).
How many kinds of adjusting entries
in practice?
ADVANCED! NOT IN
SCOPE!

Correct errors (if

any)

Recognize (Accrued)
revenues and
expenses

Allocate (Prepaid)
revenues and
expenses
 Journalize some odd transactions
Events (Deferrals or Prepayment) What is the proper
Revenues and Expenses
for the period ended Dec
31?
On December 15, UEL Company received
$3,600 cash for consulting services that
will be performed during 3 months from
now. Prepare a general journal entry to
record the $3,600 cash receipt.
 Journalize some odd transactions
Events (Deferrals or Prepayment) What is the proper Revenues and
Expenses for the period ended
Dec 31?

On October 1 of the current year, UEL

Company paid $9,600 cash for a one-year
insurance policy that took effect on that
day. On the date of the payment, record
the entry?
 Journalize some odd transactions
Events (Deferrals or Prepayment) What is the proper Revenues and
Expenses for the period ended Dec
31?
UEL Co had $1,500 of store supplies at the beginning
of the current year. During this year, UEL purchased
$8,250 worth of store supplies. On December 31,
$1,125 worth of store supplies remained. Record the
purchases entry?
 Journalize some odd transactions
Events (Deferrals or Prepayment) What is the proper Revenues and
Expenses for the period ended Dec
31?
UEL company purchased a new truck at a cost of
$42,000 on July 1, 2018. The truck is estimated to
have a useful life of 6 years and a
salvage/scrap/residual value of $3,000. The company
uses the straight-line method of depreciation. Record
the purchase and the depreciation for the year ended
December 31, 2018?
 Journalize some odd transactions
Events (accrued ex and rev) What is the proper Revenues
and Expenses for the period
ended Dec31?
On Dec 31 UEL Co performed two thirds (2/3) of 3 months
consulting services costing $9,000 that will be paid in
January 31. Did UEL receive any cash at Dec 31? And Did u
perform the services?
How can we (accountants) help?
 Journalize some odd transactions
Events (accrued ex and rev) What is the proper Revenues
and Expenses for the period
ended Dec31?
UEL company has 20 employees who each earn $500 per
week for a 5-day week that begins on Monday and pay
salaries on Friday every week. December 31 of this year is a
Monday, and all 20 employees worked that day. Did UEL pay
salaries on December 31 or record something? How can we
(accountants) help?
 Journalize some odd transactions
Events (accrued ex and rev) What is the proper Revenues
and Expenses for the period
ended Dec31?
Accrue/Record Interest Payables incurred on Notes payables
or Bank loans for the period the same idea as for Salary
payables:
Compute interests = Face value of note/bank loan x interest
rate per year x Time incurred per year.
IN SUMMARY

TIME PERIOD
ASSUMPTIONS
IN SUMMARY