Textbook Notes (380,991)
CA (168,309)
UTSC (19,300)
MGA (381)
MGAB01H3 (127)
Liang Chen (50)
Chapter

Adjusting Entries for Accruals

2 Pages
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Department
Financial Accounting
Course Code
MGAB01H3
Professor
Liang Chen

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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
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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
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Description
Adjusting Entries for Accruals The adjusting entry for accruals will increase both a balance sheet and an income statement account Accrued Revenues Revenues earned, but not yet received in cash or recorded at the statement date, are accrued revenues. 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 The adjusting entry results in a debit (increase) to an asset account and a credit (increase) to a revenue account Accrued Expenses Expenses incurred but not yet paid or recorded at the statement date are called accrued expenses (i.e. interest, rent, taxes) 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 According to the matching principle, a portion of the cost of a capital
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