UC ECON 006B - Types of Adjusting Entries

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Types of Adjusting Entries Illustration 3 20 Deferrals Accruals 1 Prepaid Expenses 3 Accrued Revenues Expenses paid in cash and recorded as assets before they are used or consumed Revenues earned but not yet received in cash or recorded 2 Unearned Revenues 4 Accrued Expenses Revenues received in cash and recorded as liabilities before they are earned Expenses incurred but not yet paid in cash or recorded Slide 3 43 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Deferrals Illustration 3 21 Deferrals are either prepaid expenses or unearned revenues Slide 3 44 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Prepaid Expenses Payment of cash that is recorded as an asset because service or benefit will be received in the future Cash Payment BEFORE Expense Recorded Prepayments often occur in regard to insurance supplies advertising rent purchasing buildings and equipment Slide 3 45 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Prepaid Expenses Supplies Pioneer purchased advertising supplies costing 25 000 on October 5 Prepare the journal entry to record the purchase of the supplies Oct 5 Advertising supplies 25 000 Cash 25 000 Advertising Supplies Cash Debit Credit Debit Credit 25 000 25 000 Slide 3 46 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Prepaid Expenses Supplies An inventory count at the close of business on October 31 reveals that 10 000 of the advertising supplies are still on hand Oct 31 Advertising supplies expense 15 000 Advertising supplies 15 000 Advertising Supplies Advertising Supplies Expense Debit Credit Debit Credit 25 000 15 000 15 000 10 000 Slide 3 47 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Prepaid Expenses Illustration 3 35 Statement Presentation Advertising supplies identifies that portion of the asset s cost that will provide future economic benefit Slide 3 48 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Prepaid Expenses Illustration 3 34 Statement Presentation Advertising expense identifies that portion of the asset s cost that expired in October Slide 3 49 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Prepaid Expenses Insurance On Oct 4th Pioneer paid 6 000 for a one year fire insurance policy beginning October 1 Show the entry to record the purchase of the insurance Oct 4 Prepaid insurance 6 000 Cash 6 000 Prepaid Insurance Debit Credit 6 000 Cash Debit Credit 6 000 Slide 3 50 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Prepaid Expenses Insurance An analysis of the policy reveals that 500 6 000 12 of insurance expires each month Thus Pioneer makes the following adjusting entry Oct 31 Insurance expense 500 Prepaid insurance 500 Prepaid Insurance Debit Credit Insurance Expense Debit Credit 6 000 500 500 5 500 Slide 3 51 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Prepaid Expenses Illustration 3 35 Statement Presentation Prepaid Insurance identifies that portion of the asset s cost that will provide future economic benefit Slide 3 52 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Prepaid Expenses Illustration 3 34 Statement Presentation Insurance expense identifies that portion of the asset s cost that expired in October Slide 3 53 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Prepaid Expenses Depreciation Pioneer Advertising estimates depreciation on its office equipment to be 400 per month Accordingly Pioneer recognizes depreciation for October by the following adjusting entry Oct 31 Depreciation expense 400 Accumulated depreciation 400 Depreciation Expense Accumulated Depreciation Debit Credit Debit Credit 400 400 Slide 3 54 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Prepaid Expenses Illustration 3 35 Statement Presentation Accumulated Depreciation is a contra asset account Slide 3 55 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Prepaid Expenses Illustration 3 34 Statement Presentation Depreciation expense identifies that portion of the asset s cost that expired in October Slide 3 56 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Unearned Revenues Receipt of cash that is recorded as a liability because the revenue has not been earned Cash Receipt BEFORE Revenue Recorded Unearned revenues often occur in regard to rent airline tickets school tuition magazine subscriptions customer deposits Slide 3 57 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Unearned Revenues Unearned Revenue Pioneer Advertising received 12 000 on October 2 from KC for advertising services expected to be completed by December 31 Show the journal entry to record the receipt on Oct 2nd Oct 2 Cash 12 000 Unearned service revenue 12 000 Cash Unearned Service Revenue Debit Credit Debit Credit 12 000 12 000 Slide 3 58 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Unearned Revenues Unearned Revenues Analysis reveals that Pioneer earned 4 000 of the advertising services in October Thus Pioneer makes the following adjusting entry Oct 31 Unearned service revenue 4 000 Service revenue 4 000 Service Revenue Unearned Service Revenue Debit Credit Debit Credit 100 000 4 000 4 000 12 000 8 000 Slide 3 59 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Unearned Revenues Illustration 3 35 Statement Presentation Unearned service revenue identifies that portion of the liability that has not been earned Slide 3 60 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Unearned Revenues Illustration 3 34 Statement Presentation Service revenue represents that portion of the liability that was earned in October Slide 3 61 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Accruals Illustration 3 27 Accruals are either accrued revenues or accrued expenses Slide 3 62 LO 5 Explain the reasons for preparing adjusting entries Adjusting Entries for Accrued Revenues Revenues earned but not yet received in cash or recorded Adjusting entry results in Revenue Recorded BEFORE Cash Receipt Accrued revenues often occur in regard to rent interest services performed Slide 3 63 LO 5 Explain the reasons for


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