ADJUSTING ENTRIES
The purpose of adjusting entries is to assign to each accounting period appropriate amount of revenue and expenses.
Need for adjusting entries
Adjusting entries are needed at the end of each accounting period to make certain that appropriate amounts of revenue and expense are reported in the company income statement.
TYPES OF ADJUSTING ENTRIES
1.Converting assets to expenses.
A cash expenditure that will benefit more than one accounting period usually is recorded by debiting asset account and by crediting cash.adjusting entry for this is to debiting the expense account(e.g supplies expense or insurance expense) and crediting the related asset account( e.g unexpired insurance , supplies, prepaid rent).
example....
cash paid in advance for the rent amounting 6000 by the company for three months.
prepaid rent 6000
cash 6000
(rent paid for three months in advance)
"" ADJUSTING ENTRY""
rent expense 2000
prepaid rent 2000
CONCEPT OF DEPRECIATION
Depreciable assets.
Depreciable asset are physical object that retain that retain there size and shape.
e.g buildings, all type of equipments,fixtures etc.
Depreciation.
depreciation expense occur over the life of the asset.it means the systematic allocation of the cost of the depreciable asset to expense over the assets life.
Adjusting entry.
depreciation expense
accumulated depreciation asset.
2.Converting liabilities to revenue.
Amounts collected in advance do not represent revenue because these amounts havenot yet been earned..when a company collects money in advance from its customer it has an obligation to render services in future.so the balance of the unearned revenue is cosiderd to be a liability.
ADJUSTING ENTRY.
Unearned revenue
revenue earned.
3.Accruing unpaid expenses.
Expenses that will be paid in future transactions.theereforeno cost has yet been recorded in the accounting records.
EXAMPLES...
Salaries of employees, interest on borrowed money etc.......
At the end of accounting period,an adjusting entry should be made to record any expenses that have accrued but are not recorded.
ADJUSTING ENTRY
expense
expense payable
4.Accruing revenue....
Any revenue that has been earned but not recoeded during the current accounting period should be recorded at the end of the period by means of adjusting entries.
Adjusting entry consists of a debit to an account recievable and credit to an appropriate revenue account.
ADJUSTING ENTRY
account recievable
revenue account
It can also be written as a income recievable debit and credit revenue aur income account............
The purpose of adjusting entries is to assign to each accounting period appropriate amount of revenue and expenses.
Need for adjusting entries
Adjusting entries are needed at the end of each accounting period to make certain that appropriate amounts of revenue and expense are reported in the company income statement.
TYPES OF ADJUSTING ENTRIES
1.Converting assets to expenses.
A cash expenditure that will benefit more than one accounting period usually is recorded by debiting asset account and by crediting cash.adjusting entry for this is to debiting the expense account(e.g supplies expense or insurance expense) and crediting the related asset account( e.g unexpired insurance , supplies, prepaid rent).
example....
cash paid in advance for the rent amounting 6000 by the company for three months.
prepaid rent 6000
cash 6000
(rent paid for three months in advance)
"" ADJUSTING ENTRY""
rent expense 2000
prepaid rent 2000
CONCEPT OF DEPRECIATION
Depreciable assets.
Depreciable asset are physical object that retain that retain there size and shape.
e.g buildings, all type of equipments,fixtures etc.
Depreciation.
depreciation expense occur over the life of the asset.it means the systematic allocation of the cost of the depreciable asset to expense over the assets life.
Adjusting entry.
depreciation expense
accumulated depreciation asset.
2.Converting liabilities to revenue.
Amounts collected in advance do not represent revenue because these amounts havenot yet been earned..when a company collects money in advance from its customer it has an obligation to render services in future.so the balance of the unearned revenue is cosiderd to be a liability.
ADJUSTING ENTRY.
Unearned revenue
revenue earned.
3.Accruing unpaid expenses.
Expenses that will be paid in future transactions.theereforeno cost has yet been recorded in the accounting records.
EXAMPLES...
Salaries of employees, interest on borrowed money etc.......
At the end of accounting period,an adjusting entry should be made to record any expenses that have accrued but are not recorded.
ADJUSTING ENTRY
expense
expense payable
4.Accruing revenue....
Any revenue that has been earned but not recoeded during the current accounting period should be recorded at the end of the period by means of adjusting entries.
Adjusting entry consists of a debit to an account recievable and credit to an appropriate revenue account.
ADJUSTING ENTRY
account recievable
revenue account
It can also be written as a income recievable debit and credit revenue aur income account............
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