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ACTG 1P91 (12)
Chapter 4

Chapter 4.docx

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Department
Accounting
Course Code
ACTG 1P91
Professor
Sohyung Kim

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Description
Accounting 1P91 Ch. 4 Adjustments and Closing 1. Two types of adjustments: Deferral and Accrual 1.1 Deferral adjustments are used to update accounts that are previously recorded 1.2 Accrual adjustments are used to include transactions that are not previously recorded. 2. Examples of Deferral: 2.1Prepaid Expenses On September 1 2012, you pay one-year insurance premium of $2,400 for the period of September 1 2012 – August 31 2013: dr) Prepaid Insurance (+A) 2,400 cr) Cash (-A) 2,400 st On December 31 2012: dr) Insurance Expense (+E, -SE) 800 cr) Prepaid Insurance (-A) 800 st On August 31 2013: dr) Insurance Expense (+E, -SE) 1,600 cr) Prepaid Insurance (-A) 1,600 2.2 Amortization Expense st On January 1 2012: dr) Equipment (+A) 50,000 cr) Cash (-A) 50,000 On December 31 2012: dr) Amortization Expense (+E, -SE) 10,000 cr) Accumulated Amortization Expense 10,000 – Equipment (+XA, -A) **Accumulated amortization is called contra-asset account, which reduces the accompanying asset account On Balance Sheet: Equipment 50,000 Less: Accumulated Amortization (10,000) Equipment, net 40,000 Under IFRS Under ASPE Tangible Human-Made assets Depreciation Amortization Tangible Natural Resources Depletion Amortization Intangible Assets Amortization Amortization 2.2Unearned Revenue Initially: dr) Cash (+A) 2,000 cr) Unearned Revenue (+L) 2,000 As you deliver goods or perform services: dr) Unearned Revenue (-L) 1,000 cr) Revenue (+R, +SE) 1.000 3. Expenses of Accrual 3.1 Interest Income Kramer Co. deposited $1million in a local bank on September 1 2012. The company st will get interest on deposit on August 31 2013. Let’s assume the interest rate is 6% per annum. On December 31 2012: dr) Interest Receivable (+A) 20,000 cr) Interest Income (+R, +SE)
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