CHAPTER 7 ADJUSTING and CORRECTING to THE ACCOUNTS

CHAPTER 7

ADJUSTING and CORRECTING to THE

ACCOUNTS

2

Illustration 1 : Relationship Among Accounting Period Asumption Income

Umur Ekonomis dari Suatu Bisnis dapat Dibagi dalam Beberapa

Periode

Prinsip Pengakuan Pendapatan

Pendapatan yang Diakui adalah Pendapatan yang diperoleh dalam Periode

Akuntansi

Konsep Penandingan

Beban Diakui Sejumlah Pengeluaran yang Memberikan Kontribusi dalam Perolehan

Pendapatan

Pengakuan Pendapatan dan Beban Reognition

Harus Sesuai dengan Prinsip-prinsip yang Diterima Umum

Asumsi Periode Waktu

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The Importance of Adjusting

• Accounting Period is basic concept of accounting representing that to prepare financial statements, accountant must be assuming that the economic life of the business can be divided into time periods

• Using the accounting period concept, accountants must determine in which period the revenues and expenses of the business should be reported

• To determine the appropriate period, accountants will use either (1) the cash basis of accounting or (2) the accrual basis of accounting

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Cash Basis•Under cash basis, revenues and

expenses are reported in the income statement in the period in which cash is received or paid

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• Under the accrual basis, revenues are reported in the income statement in the period in which they are earned

• Revenue is reported when the services are provided to customers. Cash may or may not be received from customers during this period

• The concept that supports this reporting of revenues is called the revenue recognition concept

• Expenses are reported in the same period as the revenues to which the relate

The Accrual Basis

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• Generally accepted accounting principles require the use of the accrual basis

• Small service businesses may use the cash basis because they have few receivables and payables

• For small service businesses, cash basis will yield financial statements similar to those prepared under the accrual basis

• For most large businesses, the cash basis will not provide accurate financial statements for user needs

• The accrual basis and its related matching concept require an analysis and updating of some accounts when financial statements are prepared

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Nature of The Adjusting Process

• At the end of an accounting the period, many of the balances of accounts in the ledger can be reported in the financial statement

• To show the actual financial condition of the firm, It’s required updating to some accounts

• The journal entries that bring the accounts up to date at the end of the accounting period are called adjusting entries

• All adjusting entries affect at least one income statement account and one balance sheet account

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• An adjusting entry will always involve a revenue or an expense account and asset or liability account

• There are 4 (four) basic items require adjusting entry: a. The first two items are deferrals. They are consisted of: (1) deferred expenses or prepaid expenses, and (2) deferred revenues or unearned revenuesb. The second two items are accruals. They are consisted of: (1) accrued expenses or accrued liabilities, and (2) accrued revenues or accrued assets

• The following pictures is the illustrtion of deferrals and accruals (Illustration 2)

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Future Accounting PeriodFuture Accounting Period

January

1 1999

December

31 1999

Cash received or paid

Revenue earned or expense incurred

Adjusting entries to record current

period revenue or expense

Accruals

Current Accounting Period

Current Accounting Period

January

1 2000

December

31 2000

Deferrals

Revenue earned or expense incurred

Cash received or paid

Recording Adjusting Entries• The following data is used to prepare

adjusting entries in Cipta Jasa Karya, Co.

a. Trial Balance

b. The relevant information

1) Sallaries accrued but not paid at August, 31 Rp. 240.000

2) Accrued fees earned but not recorded at August,31 Rp. 550.000

3) Insurance premiums expired during the period Rp. 600.000

4) Building rent expired during period Rp. 3.200.000

5) Unearned fees at, August, 31 Rp. 7.400.000

6) Depreciation of equipment during period, Rp. 1.400.000

7) Supplies on hand 31, Agust Rp. 2.700.000

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Cipta Jasa Karya, CoTrial Balance

Agust, 31, 2008

Codes Name of Account Debit Credit11 Cash 16.650.00012 Account Receivable 3.800.00013 Supplies 4.400.00014 Prepaid Rent 19.200.00015 Prepaid Insurance 3.600.00016 Office Expense 29.000.00017 Accum Deprec-Equipment21 Account Payable 1.600.00022 Salaries Payable

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Codes Name of Account Debit Credit23 Unearned Revenue 10.000.00031 Tn Bagus, Capital 54.000.00032 Tn Bagus, Withdrawals 1.500.00041 Service Revenue 16.200.00051 Salaries Expense 3.000.00052 Rent Expense53 Supplies Expense54 Depreciation Expense-Equipment55 Insurance Expense56 Advertising Expense 24057 Utilities Expense 26058 Utilities Expense 150

81.800.000 81.800.000

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Ilustration 3: Adjusting Entries of Prepaid Expense

Debit to Liabilities Account in Adjusting Entries

Unadjusted Balance

Credit to Revenues Account in Adjusting Entries

Prepaid Expense

Prepaid Expenses

AssetsUnadjusted Balance

Credit to Assets Account in Adjusted Entries

ExpenseDebit to expenses Account in Adjusting Entries

LIabilities Revenues

Adjusting Entries

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(in Rp)

Description Reff. Debit Credit

2008August 31 adj Salaries Expense 240,000

Salaries Payable 240,000

Date

16

(in Rp)


2008August 31 adj Unearned Revenues 550,000

Services Revenues 550,000

Date

Unearned RevenuesUnearned Revenues

Oct,31

Revenues and Receivables are Recorded to Service Given

Nov.

Cash Receipts Reduce Receivables

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(in Rp)


2008August 31 adj Insurance Expense 600,000

Prepaid Insurance 600,000

Date

InsuranceInsurance

Okt. 4

Oct, 31

Oct50

Nov50

Dec50

Jan50

Feb50

Mar50

Apr50

Mey50

June50

July50

August50

Sept50

Insurance policw

One Year 600

Expired Insurance is as Insurance Expense

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(in Rp)

Description Ref Debit Credit2008

August 31 adj Rent Expense 3.200.000 Prepaid Rent 3.200.000

Date

19

(in Rp)

Description Reff Debit Credit2008

August 31 adj Rent Revenue 2.600.000 Accrued Revenue 2.600.000

Date

Accrued RevenueAccrued RevenueOct, 2

Cash Advanced is Recorded as LIability

Revenue Earned for Services Rendered

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(in Rp)


August 31 adj Depreciation Expense-Equipment 1.400.000 Accumulated Depreciation 1.400.000

Date

DepreciationDepreciation

Oct. 1

Office Equipment is Recorded as Asset Office Equipment

Oct.31

Recognition of Depreciation is as Depreciation Expense

Oct40

Nov40

Dec40

Jan40

Feb40

Mar40

Apr40

May40

June40

July40

August40

Sept40

Office Equipment

Depreciation=480/year

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SuppliesSupplies

Oct. 5

Purchased Supplies is Recorded as Assets

Oct. 31Using of Supplies is Recorded as Supplies Expenses

(in Rp)


August 31 adj Supplies Expense 1.700.000 Supplies 1.700.000

Date

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(In Rp) Page : 10Description Reff. Debit Credit

Adjusting entries2008 31 Salaries Expense 51 240000

August Salaries Payable 21 240000

31 Account Receivable 12 550000 Service Revenue 41 550000

31 Insurance Expense 55 600000 Prepaid Insurance 15 600000

31 Rent Expense 52 3.200.000 Prepaid Rent 14 3.200.000

31 Accrued Revenue 23 2.600.000 Service Revenue 41 2.600.000

31 Depreciation Expense-Equipment 54 1.400.000 Accumulated Depreciation -Equipment 17 1.400.000

31 Supplies Expense 53 1.700.000 Supplies 13 1.700.000

DateGeneral Journal

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Ilustration 4: Adjusted Trial BalanceCipta Jasa Karya, Co

Adjusted Trial Balance August, 31, 2008

Debit Credit Debit Credit Debit Credit

11 Cash 16.650.000 16.650.000

12 Account Receivable 3.200.000 550.000 4.350.000

13 Supplies 4.400.000 1.700.000 2.700.000

14 Prepaid Rent 19.200.000 3.200.000 1.600.000

15 Prepaid Insurance 3.600.000 600.000 3.000.000

16 Office Expense 29.000.000 29.000.000

17 Accumulated Expense-Equipment 1.400.000 1.400.000

21 Account Payable 1.600.000 1.600.000

22 Salaries Payable 240.000 240.000 23 Accrued Revenue 10.000.000 2.600.000 31 Tn Bagus, Capital 54.000.000 32 Tn Bagus, Withdrawals 1.500.000 1.500.000 41 Service Revenue 16.200.000 550.000 19.350.000

2.600.000 51 Prepaid Salaries 3.000.000 240.000 3.240.000 52 Rent Expense 1.700.000 1.700.000 53 Supplies Expense 600.000 600.000 54 Depreciation Expense-Equipment 3.200.000 3.200.000 55 Insurance Expense 1.400.000 1.400.000 56 Advertising Expense 240.000 240.000 57 Utilities Expense 260.000 260.000 58 Utilities Expense 150.000 150.000

81.200.000 81.200.000 83.990.000 83.990.000

Trial Balance Adjusment Adjusment Trial BalanceNo. Account

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(in Rp) Page :


August 5 Supplies 4.000.000 Cash 4.000.000

DateGeneral Journal

(in Rp) No.:

Description Ref Debit Credit

2008August 5 TU 4.000.000

4.000.000

DateSupplies

(in Rp) No.:


2008August 5 TU 4.000.000

4.000.000

DateSupplies

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(in Rp) Page :


August 5 Supplies 4.000.000 Cash 4.000.000

DateGeneral Journal

(in Rp) No. :


2008August 5 TU 4.000.000

4.000.000

DateEquipment

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(in Rp) Page : 20


August 31 Supplies 4.000.000 Equipment 4.000.000

DateGeneral Journal

(in Rp) No.:

Debit Credit2008

August 5 TU 4.000.000 4.000.000 31 Correction TK 4.000.000 -

Supplies

AmountDate Description Ref Debit Credit

(in Rp) No:

Debit Credit2008

August 31 Correction TU 4.000.000 4.000.000 -

Equipment

AmountDate Description Ref Debit Credit

CHAPTER 7 ADJUSTING and CORRECTING to THE ACCOUNTS

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