Chapter 8!
The Accounting Cycle
Work Sheet and Adjusting Process
Unit 3 Test (cover chapter 6, 7 and 8, but we will cover
only some portion of chapter 8) will be Tue Nov 18.
DECA people will write the test on Wed lunch time.
Adjusting Entries
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Typically only senior (or intermediate)
accountants would make adjusting entries
at the end of the fiscal period.
They make entries for revenues and
expenses which have been accruing but
have not yet been recorded.
Adjusting Entry: is a journal entry which
assigns an amount of revenue and expense
to the appropriate accounting period.
Adjusting entries bring a balance sheet
accout to its true value.
Adjusting Entry
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There are many different types of adjusting
entries accountants make at the end of the
fiscal period:
Prepaid Expense
Prepaid Insurance
Supplies adjustment
Unearned Revenue
Late-Arriving Purchase Invoice
Prepaid Insurance
Insurance premium is paid for assets
(building, car etc) to protect (or insure)
against fire, theft etc….
 Journal Entry:
Purchased auto insurance on July 1 for 1 year
policy. Business paid $2400 on July 1.
July 1 Prepaid Insurance 2400
Bank
2400
Adjustment on Dec 31, 2013
Insurance Expense 1200
Prepaid Insurance
1200
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Prepaid Insurance T account
Prepaid Insurance T account
(J1) 2400
1200
(D31)
1200 (Ending Balance on Dec 31)
Prepaid Expenses
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An expense is paid in advance to benefit
more than one accounting period.
Any current asset costs will be used up in the
near future.
Example: Prepaid Insurance, Licenses, Rent
and Advertising
Oct 1 you paid $5000 for radio ads which will
go on for 5 months.
Oct 1 Prepaid Advertising 5000
Bank
5000
Prepaid Expenses
Dec 31, you will make an adjusting entry:
Advertising Expense 3000
Prepaid Advertising (asset)
3000
Prepaid Advertising (asset)
(O31) 5000
3000 (D31)
2000 (Ending balance D31)
Adjusting Entry for Unearned Revenue
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Sometimes customer pays for service on
December 15 for the service you will
provide in January. Then Revenue
Recognition says that accountant must
make an adjusting entry because revenue
is not earned yet.
Adjusting Entry for Unearned Revenue
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For example, We to Me Care paid $1500 on
December 29 2013 for accounting service
which will be performed in January 2014.
Dr.
Cr.
Dec 29 Bank
1500
Fees earned (Rev)
1500
Received fee for accounting service from We to
Me
Adjusting Entry for Unearned Revenue
Dec 31 Fees earned
1500
Unearned Revenue (liab) 1500
Adjusting Entry for Unearned Revenue (We to Me)
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If I did not make the adjusting entry, then my
revenue is too high for 2013 Income statement 
Net Income is overstated.
This Unearned Revenue account is a liability to
We to Me Care.
T account for Unearned Revenue
Fees earned
(D31) 1500 1500 (D29)
0 (Ending Balance Dec 31)
Classwork
1)
2)
3)
Answer Review Questions – pg 275 #9, 10,
12, 16, 17, 18, 19, 20 and 21
Pg. 276 Ex #1 and 2(The rest you did not
finish yesterday),
Ex# 3 and #4,(P277 and P278)