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 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a
Applications for Financial Accounting by David Willis,
slides prepared by Kaye Watson
1
Chapter
1
BALANCE DAY ADJUSTMENTS
LEARNING OUTCOME:
 TO REVISE GENERAL JOURNAL ENTRIES FOR
BALANCE DAY ADJUSTMENTS
 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a
Applications for Financial Accounting by David Willis,
slides prepared by Kaye Watson
2
KEY TERMS







accrued expenses
accrued revenue
balance date
balance day adjustments
balance day entries
prepaid expenses
revenue in advance
 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a
Applications for Financial Accounting by David Willis,
slides prepared by Kaye Watson
3
THE ACCRUAL CONCEPT
 Assumes that transactions are recorded in
the period when revenue is earned and
expenses are incurred
NOT
 When the cash is received and expenses
are paid
 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a
Applications for Financial Accounting by David Willis,
slides prepared by Kaye Watson
4
TYPES OF BALANCE DAY
ADJUSTMENTS
1. Accrued revenue
 Revenue earned but
not yet received
2. Accrued expenses
 Expenses incurred but
not yet paid
3. Revenue in advance
 Revenue received but
not yet earned
4. Prepaid expenses
 Expenses paid but not
yet incurred
 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a
Applications for Financial Accounting by David Willis,
slides prepared by Kaye Watson
5
TYPES OF BALANCE DAY
ACCOUNTS
1. Asset account
(DEBIT)


Accrued revenue
Prepaid expenses
2. Liability account
(CREDIT)


Revenue in advance
Accrued expenses
 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a
Applications for Financial Accounting by David Willis,
slides prepared by Kaye Watson
6
EXAMPLE
 Accrued revenue
Commission is due to be paid in July on a property
sold in June
General Journal
Date
Details
30 June Accrued revenue
Commission revenue
Commission accrued
but not yet received
Debit
($)
4000
Credit
($)
4000
 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a
Applications for Financial Accounting by David Willis,
slides prepared by Kaye Watson
7
EXAMPLE
 Prepaid expenses
Insurance expense account includes an amount of
$3000 which relates to July, August and September in
the next financial year
General Journal
Date
Details
30 June Prepaid expenses
Insurance expense
Prepaid insurance
expense
Debit
($)
3000
 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a
Applications for Financial Accounting by David Willis,
slides prepared by Kaye Watson
Credit
($)
3000
8
EXAMPLE
 Accrued expenses
Wages to be paid in July include $1000 for employees
who worked on 29 June.
General Journal
Date
Details
30 June Wage expense
Accrued wages
Wages accrued
Debit
($)
1000
 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a
Applications for Financial Accounting by David Willis,
slides prepared by Kaye Watson
Credit
($)
1000
9
EXAMPLE
 Revenue received in advance
Fees received in June included a deposit of $2000 for
a project starting in August
General Journal
Date
Details
30 June Fee revenue
Revenue received in
advance
Deposit on project
Debit
($)
2000
Credit
($)
2000
 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a
Applications for Financial Accounting by David Willis,
slides prepared by Kaye Watson
10
BALANCE DAY ADJUSTMENTS AFFECT
STATEMENT OF FINANCIAL POSITION
Prepaid
expense
Accrued
revenue
DEBIT
ASSET
ASSET
STATEMENT OF
FINANCIAL
CREDIT
LIABILITY
POSITION AT
JUNE 30
Revenue in
CREDIT
advance
LIABILITY
Accrued
expense
DEBIT
 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a
Applications for Financial Accounting by David Willis,
slides prepared by Kaye Watson
11
OTHER BALANCE DAY
ENTRIES
 Closing inventories
 Bad and doubtful debts
 Depreciation
 Provision for annual leave
 Provision for long service leave
 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a
Applications for Financial Accounting by David Willis,
slides prepared by Kaye Watson
12