The document discusses the adjustments or adjusting entries in the accounting cycle. It also summarizes the definition, adjusting journal entries, and the formula for each adjustment.
ADJUSTMENTS DEFINITION FORMULA PORTION TO RECORD ADJUSTING ENTRIES
1. PREPAYMENTS Already paid but not yet used ASSET: Used portion Expense Account xxx
Used Portion = (Total Payment/Total Period Coverage) x Used Months Prepaid Account
EXPENSE: Unused Prepaid Account xxx
Unused Portion = (Total Payment/Total Period Coverage) x Unused Months Expense Account
Unused Portion = Total Payment - Used Portion
If the payment date did not start on either the start or end of the month:
Monthly Used Portion = (Total Payment/Total Period Coverage) x Used Months
Daily Used Portion = (Total Payment/Total Period Coverage)/Number of Days in a year) x Number of Days Used
Customer already paid but no LIABILITY:
2. DEFERRALS service/product given yet Earned Unearned Revenue xxx
Earned means the service has already
Earned Portion = (Total Income/Total Period Coverage) x Earned Months Revenue
rendered
INCOME: Unearned Revenue xxx
Unearned Portion = (Total Income/Total Period Coverage) x Unearned Months Unearned Revenue
Unearned Portion = Total Income - Earned Portion
If the payment date did not start on either the start or end of the month:
Monthly Earned Portion = (Total Income/Total Period Coverage) x Earned Months
Daily Earned Portion = (Total Income/Total Period Coverage)/Number of Days in a year) x Number of Days Earned
3. ACCRUED
EXPENSE Already used but not yet paid BILLS: Payable Expense xxx
No Computation, just copy the accrued amount Payable
ACCRUED ACCOUNT:
Accrued Expense = (Total Expense/Total Period Coverage) x Covered Days/Time Passed
* for interest the total coverage would
always be 12 months (if the given is the
number of months) and 360 (if the given is
the number of days) Accrued Interest Expense = (Principal Amount x Rate x Covered days)/Total Period Coverage
4. ACCRUED Already rendered the service but no
INCOME payment yet ONE-TIME PAYMENT INCOME: Receivable Receivable xxx
No Computation, just copy the accrued amount Income
ACCRUED INCOME:
* for interest the total coverage would Accrued Income = (Total Income/Total Period Coverage) x Covered Days/Time Passed
always be 12 months (if the given is the
number of months) and 360 (if the given is
the number of days) Accrued Interest Income = (Principal Amount x Rate x Covered days)/Total Period Coverage
5. BAD DEBTS
EXPENSE Losses in receivable account BAD DEBTS EXPENSE (NO ALLOWANCE): Uncollectible Accounts Bad Debts Expense xxx
Bad Debts Expense = Total Receivable x Uncollectible Percentage Allowance for Bad Debts Expense
BAD DEBTS EXPENSE (WITH ALLOWANCE): ----OR-----
Bad Debts Expense = (Total Receivable x Uncollectible Percentage) - Allowance Uncollectible Accounts Expense xxx
Allowance for Uncollectible Accounts Expense
----OR-----
Doubtful Accounts Expense xxx
Allowance for Doubtful Accounts Expense
6. DEPRECIATION Reduction in the value of an asset with the Reduced amount on PPE's
EXPENSE passage of time ANNUAL DEPRECIATION: original cost Depreciation Expense - (Specific type of PPE)xxx
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