ACCG100 Cheat Sheet - Adjusting Entries PDF

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Adjusting Entry Notes...

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ACCG100 Cheat Sheet Adjusting Entries Author: Peter Clark Context Adjusting entries are used at the end of a period (usually a month) to adjust our accounts. Adjustments are necessary to ensure that our accounts are true and accurate. Accrual based accounting means that we recognise income and expenses when we incur them, rather then when we receive or pay for them in cash. This can lead to some entries being required at the end of the period which have missed our accounting system because no cash has changed hands. We write these entries the same way we record our general journal entries. Make sure the date is always the end of the period. Types of Adjusting Entries There are five types of adjusting entries in ACCG100. The account names may change, but the basis of these entries will always be the same. Adjustment

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Journal Template

Example

Example Journal

Prepaid expense

As a prepaid expense is used each period, we decrease the asset and recognise the expense.

Date: Dr Expense Cr Prepaid expense (asset) Narration

Insurance premium was paid for the next 12 months of $48,000 on the 1st of April 2019.

30/4: Dr Insurance Expense (48000/12) Cr Prepaid insurance (48000/12) Recognise one month’s insurance expiration

Revenue received in advance

When a customer pays us in advance, we have received cash but have not provided the services yet. This means we still owe (liability) the customer the services.

Date: Dr Cash Cr Revenue received in advance Narration

Coca Cola paid your marketing firm $10,000 on 30 April 2019 upfront for marketing services you will provide in the next month. You provide these services by the end of May 2019.

Accrued revenue

We have performed work for a customer, but we have not processed an invoice for that customer yet. We still need to recognise revenue in the correct period, as we do the work.

Date: Dr Accounts receivable Cr Revenue Narration

You run a beer manufacturing business where you bill clients (distributors) at the end of every second month. You have sold $89,000 of beer for April 2019.

30/4: Dr Cash 10000 Cr Revenue received in advance 10000 Received upfront payment from client 31/5: Dr Revenue received in advance 10000 Cr Revenue 10000 Finished providing services to client 30/4: Dr Accounts receivable 89000 Cr Revenue 89000 Accumulated revenue to be billed in a future month

Accrued expenses

We have incurred an expense but have not recognised it yet in our accounts because we haven’t had to pay for it yet. We will have to pay it at some point in the future so we need to recognise the expense and a liability to show we owe the money.

Date: Dr Expense Cr Payable Narration

You’ve moved into a nice new office in Ryde. Your landlord charges your company rent every quarter. Rent is $120,000 per year. You last paid at the end of March 2019. Do the adjusting entry for rent for April 2019.

30/4: Dr Rent Expense (120000/12) Cr Rent Payable (120000/12) Accrued rent expense not payable until end of the quarter

Depreciation

Certain assets are depreciated over time. In other words, we periodically decrease the value. This adjustment is to recognise the depreciation expense and the accumulated depreciation of the asset.

Date: Dr Depreciation Expense Cr Accumulated depreciation – “asset” Narration

You’re a tradie who lives in Bondi. You’ve just bought a $200,000 Ford Raptor as your new ute for work on 1 April 2019. The depreciation works out at $3,250 per month. Do the adjusting entry for the end of April 2019.

30/4: Dr Depreciation Expense 3250 Cr Accumulated depreciation – motor vehicle 3250 Recognise depreciation for the month of April 2019...