Adjusting the account
Accounting cycle
Transaction
general journal
general ledger
Trial balance
Financial statement
Adjusted trail balance
Adjusting entries
Adjustment : after preparing the trial balance there is some balances should be
adjusted So we prepare adjusting entries to adjust these balances
‫بعض الحسابات تحتاج الي التعديل بعد تسجيلها بسبب عامل الوقت او االستخدام او غيره فيجب مع نهاية السنة المالية اجراء التعديالت المطلوبة وهي‬
Types of adjusting entries
1- Supplies
‫االدوات مثال االقالم و الورق و الحبر‬
‫من طبيعة الورق و الحبرو االقالم انه يتم ش رائهم في خالل السنة ويتم تسجيلهم بالقيمة المشتراة و لكن مع مرور الوقت يتم استخدام هذة االدوات و بالتالي نجد انه بنهاية‬
‫العام اصبحت كمية االدوات المتاحة مختلفة عن كمية االدوات المسجلة ( المشتراه) لذلك يجب عمل تعديل لنسجل الكمية المستهلكة‬
Example:
Assume that H corp. purchased supplies of 3000 on jan1/2004 and at the
end of the year the supplies found on hand were 1800 it means that supplies of
1200 Used
Used = beg balances + purchases – on hand
The entry to record the purchase of supplies
Jan1/2004
Supplies
Cash
3000
3000
At the end of the year we have to adjust the account for the amount used
Accounting
Chapter 3
Because the actual amount of supplies on hand now is 1800 while the amount
still recorded in the balance sheet is 3000 so adjustment will decrease the
supplies by the amount used
So the adjusting entry will be
‫يتم تسجيل االدوات المستهلكة كمصروفات و بالتالي تزيد المصروفات و تقل االدوات‬
Dec31/2004
Supplies expense
Supplies
1200
1200
Note that supplies decreased by 1200 so it means that we have a balance now of
1800 (3000 – 1200)
This is the amount that will appear in the adjusted trial balance and in the
balance sheet
Dr
Supplies
Cr
3000
1200
1800
2- Prepaid expense. ‫المصروفات المدفوعه مقدما‬
‫مثل دفع التأمين او االيجار لمدة ثالثة سنوات مقدما فيتم تسجيل المبلغ المدفوع علي انه تأمين مدفوع مقدما فمع نهاية العام يكون قد مر عام من االعوام الثالثة المسددة‬
‫فبالتالي اصبح فعليا" المدفوع مقدما هو عامان فقط و لكن المسجل مازال ثالثة اعوام فبالتالي نقوم بعمل تعديل لنخفض التامين المدفوع مقدما بقيمة عام و المبلغ المخفض‬
‫يعتبر مصروف و ذلك الن الشركة قد حصلت علي خدمة تأمين لمدة عام‬
Example: Assume that on Jan. 1 /2004 H Corporation paid 3600 for a three
years rent (insurance) in advance so the entry will be,
Jan1/2004
Prepaid rent
Cash
3600
3600
Accounting
Chapter 3
Note that the amount paid for three years insurance for the period from jan 1 /
2004 till Dec 31 / 2006.
At the end of the year, one year of the prepaid rent expired so we have to record
adjusting entry to adjust the balance of the prepaid rent As part of the balance of
prepaid rent will be considered as expense
Dec31/2004
Rent expense 1200 (3600÷3years)
Prepaid rent
1200
Prepaid rent
3600
1200
2400
The remaining amount 2400 cover the remaining two years
3-unearned revenue
‫ايرادات غير مستحقة‬
‫االيرادات الغير مستحقة هي عبارة عن استالم النقود مع عدم تقديم الخدمة مع الوقت يتم تقديم الخدمة و تتحول االيرادات الغير مستحقة الي ايرادات مستحقة بالتالي نحتاج‬
‫الي عمل تعديل لتسجيل القيمة المحولة الي ايرادات مستحقة‬
Example:
Assume that on jan1/2004 A corporation received 2000 cash for
services to be performed ( in advance ) so the entry will be
Jan1/2004
Cash
2000
Unearned revenue
2000
By the end of the year the services performed were 1100 le ( or the balance
Of the unearned revenue at the end of the year were 900 le)
So the adjusting entry to adjust the unearned revenue account ;
Accounting
Chapter 3
Dec31/2004
Unearned revenue
Revenue
1100
1100
The adjusting entry was recorded because the balance of unearned revenue that
was recorded in the trial balance was 2000 that represent services to be
performed of which services of 1100 was performed by the end of the year so the
adjusting entry will adjust the balance to decrease the unearned revenue.
4 – Depreciation (reduction in value of assets)
‫جميع االصول ما عدا االراضي و االستثمارات لها عمر افتراضي و بالتالي مع نهاية عمرها االفتراضي يصبح قيمتها صفر و بناء علية تتحول قيمة االصل الي خسارة‬
‫فقرر نظام المحاسبة تقسيم قيمة االصل ( الخسارة ) علي عدد سنوات العمر االفتراضي و بالتالي يفقد االصل جزء من قيمته كل عام و هذا الجزء يعامل علي انه‬
‫مصروف‬
Depreciation means : the decrease in the value of assets because all long term
assets ( except land and investment ) have useful life So the assets value decrease
year by year
Example:
Assume that on jan1 /2004 A corp. purchased Equipment cash that cost 10000
with useful life 10 years
-The entry to record the purchase of the equipment :
Jan1/2004
Equipment
10000
Cash
10000
-At the end of the year a one month passed so the remaining useful life will be
only 9 years and the value of the equipment will decrease by 10000/10years
= 1000
-So the equipment value will dec. every year by 1000 le till the end of the 10
years
Accounting
Chapter 3
-The adjusting entry to record the Depreciation:
Dec31 /2004
Depreciation expense
1000
Accumulated depreciation
1000
-Note that depreciation expense is an expense and appear in the income
statement while accumulated depreciation appear in the balance sheet as a
reduction of assets
Balance sheet
-
Equipment
Accumulated depreciation
10000
(1000)
Book value
9000
Accumulated depreciation represent the total depreciation recorded for the assets and
appear in total in the balance sheet but in the entry appear only by the amount of
depreciation of the year
5-Accrued revenue ‫ايرادات مستحقة‬
Example:
Assume that a corp. discovered that revenues of 2100 were not billed to
customers so adjusting entry must be made to record missing amounts :
Dec31/2004
Account receivable
Revenue
2100
2100
Accounting
Chapter 3
6 – Accrued expense ‫مصروفات مستحقة‬
Example 1:
Assume that B corporation discovered by the end of the year that salaries of
400 were not recorded or paid (amount accrued ) so the adjusting entry to record
the accrual of salaries will be :
Dec31/2004
Salaries expense
400
Salaries (account) payable 400
Example 2:
Assume that A corp. signed 5000 EGP 3- months Note payable on
Oct 1 /2004 interest 12% to acquire a loan.
The entry at date of acquisition of the loan on Oct 1 / 2004
Oct 1/2004
Cash
5000
Notes payable
5000
If requires to prepare the adjusting entry on oct 31 /2004 , note that 1 month
interest due not recorded yet so the adjusting entry will record this amount
Interest due at the end of the 3 months = 5000x12%x
3
12
= 150 le
So interest of one month will be = 150/3 = 50 le (adjusting entry)
Adjusting entry
Oct 31/2004
Interest expenses
50
Interest payable
50
Accounting
Chapter 3
At the date of paying the note
Dec 31 /2004
Interest expense 2 months
Interest payable
Notes payable
Cash
100
50
5000
5150
Example 3:
Assume that A corp. pay salaries of 2000 ( for 5 working days)
each Friday and the year end were Wednesday 31 oct 2004
Saturday and Sunday are vacation
Friday
sat
sun
mon
tue
wed
Oct 26
27
28
29
30
31
Thu
Nov 1
fr
s
2
3
So at the end of the month employee accrue salaries of 3 days( 29,30,31) as
27and 28 are vacation ( note the working week start on Monday)
Salaries per day = 2000 / 5 = 400
So the adjusting entry :
Oct 31 /2004
Salaries expense
Salaries payable
2000
5
x3
1200
1200
On Nov 2 at date of payment
Salaries payable
Salaries expense (1 & 2 nov)
Cash
1200
800
2000
Accounting
Chapter 3
Adjusting entries
1 - Supplies
2 - Prepaid expense
Supplies expense
Supplies
Dr
X
X
Insurance expense
Prepaid insurance
X
3 - Unearned
revenue
Unearned revenue
Revenue
X
4 - Depreciation
Depreciation expense
Accumulated Depreciation
X
X
X
X
5 - Accrued revenue Account receivable
Revenue
X
6 -Accrued expense
X
Expense
Account Payable
Cr
X
X