Adjusting Entries – Part III
Accruals
Adjusting Entries for Accruals
Made to record:
Revenues earned and
OR
Expenses incurred
in the current accounting period that have not
been recognized through daily entries.
SO 6 Prepare adjusting entries for accruals.
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
SO 6 Prepare adjusting entries for accruals.
Adjusting Entries for “Accrued Revenues”
Accrued Revenues
An adjusting entry serves two purposes:
(1) It shows the receivable that exists, and
(2) It records the revenues earned.
SO 6 Prepare adjusting entries for accruals.
Adjusting Entries for “Accrued Revenues”
Adjusting entries for accrued revenues
Illustration 3-13
Increases (debits) an asset account and
Increases (credits) a revenue account.
SO 6 Prepare adjusting entries for accruals.
Adjusting Entries for “Accrued Revenues”
Illustration: In October Pioneer Advertising Agency earned
$200 for advertising services that had not been recorded.
Oct. 31
Accounts Receivable
Service Revenue
200
200
Illustration 3-14
SO 6 Prepare adjusting entries for accruals.
Adjusting Entries for “Accrued Revenues”
Summary
Illustration 3-15
SO 6 Prepare adjusting entries for accruals.
Adjusting Entries for “Accrued Expenses”
Expenses incurred but not yet paid in cash or
recorded.
Adjusting entry results in:
Expense Recorded
BEFORE
Cash Payment
Accrued expenses often occur in regard to:
rent
interest
taxes
salaries
SO 6 Prepare adjusting entries for accruals.
Adjusting Entries for “Accrued Expenses”
Accrued Expenses
An adjusting entry serves two purposes:
(1) It records the obligations, and
(2) It recognizes the expenses.
SO 6 Prepare adjusting entries for accruals.
Adjusting Entries for “Accrued Expenses”
Adjusting entries for accrued expenses
Illustration 3-16
Increases (debits) an expense account and
Increases (credits) a liability account.
SO 6 Prepare adjusting entries for accruals.
Adjusting Entries for “Accrued Expenses”
Illustration: Pioneer Advertising Agency signed a three-month
note payable in the amount of $5,000 on October 1. The note
requires Pioneer to pay interest at an annual rate of 12%.
Illustration 3-17
Oct. 31
Interest expense
Interest payable
50
50
Illustration 3-18
SO 6 Prepare adjusting entries for accruals.
Adjusting Entries for “Accrued Expenses”
Illustration: Pioneer Advertising Agency last paid salaries on
October 26; the next payment of salaries will not occur until
November 9. The employees receive total salaries of $2,000 for a
five-day work week, or $400 per day. Thus, accrued salaries at
October 31 are $1,200 ($400 x 3 days).
Oct. 31
Salaries expense
1,200
Salaries payable
1,200
Illustration 3-20
SO 6 Prepare adjusting entries for accruals.
Adjusting Entries for “Accrued Expenses”
Summary
Illustration 3-21
SO 6 Prepare adjusting entries for accruals.