Adjusting Entries for Accruals

96 views2 pages
27 Oct 2010
School
Course
Professor

For unlimited access to Textbook Notes, a Class+ subscription is required.

Adjusting Entries for Accruals
¾ The adjusting entry for accruals will increase both a balance sheet and an income
statement account
Accrued Revenues
¾ Revenues earned, but not yet received in cash or recorded at the statement date, are
accrued revenues.
¾ An adjusting entry is required for two purposes : to show the receivable that exists at
the balance sheet date, and to record the revenue that has been earned during the
period
¾ The adjusting entry results in a debit (increase) to an asset account and a credit
(increase) to a revenue account
Accrued Expenses
¾ Expenses incurred but not yet paid or recorded at the statement date are called
accrued expenses (i.e. interest, rent, taxes)
¾ The adjusting entry for accrued expenses results in a debit (increase) to an expense
account and a credit (increase) to a liability account
Adjusting Entries for Estimates
Amortization
¾ According to the matching principle, a portion of the cost of a capital asset should be
UHSRUWHGDVDQH[SHQVHGXULQJHDFKSHULRGRIWKHDVVHW¶VXVHIXOOLIH
¾ It is important to recognize that amortization is an estimate rather than factual
measurement of the cost that has expired
¾ To calculate the amortization expense, the cost of the asset is divided by its useful
years
Contra accounts
¾ It is an account to offset against a related account on the income statement of balance
sheet
¾ They are used in adjusting entries for amortization (i.e. Accumulated amortization ±)
¾ These are used instead of crediting/debiting accounts because it allows the reader to
see both the original cost of the item and the portion of the cost that has been
allocated to expense to date
¾ The difference between the cost of any amortizable asset and its accumulated
amortization is called the net book value
¾ This is different from its true market value; it shows only its unallocated cost
www.notesolution.com
Unlock document

This preview shows half of the first page of the document.
Unlock all 2 pages and 3 million more documents.

Already have an account? Log in

Get access

Grade+
$10 USD/m
Billed $120 USD annually
Homework Help
Class Notes
Textbook Notes
40 Verified Answers
Study Guides
1 Booster Class
Class+
$8 USD/m
Billed $96 USD annually
Homework Help
Class Notes
Textbook Notes
30 Verified Answers
Study Guides
1 Booster Class