1. CHAPTER 7 ADJUSTING and CORRECTING to THE ACCOUNTS

2. 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

3. 3 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

4. 4 Cash Basis Under cash basis, revenues and expenses are reported in the income statement in the period in which cash is received or paid

5. 5 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

6. 6 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

7. 7 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

8. 8 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 revenues b. 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)

9. 9 Future 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 January 1 2000 December 31 2000 Deferrals Revenue earned or expense incurred Cash received or paid

10. 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

11. 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

12. 12 Cipta Jasa Karya, Co Trial Balance Agust, 31, 2008

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14. 14 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 Assets Unadjusted Balance Credit to Assets Account in Adjusted Entries Expense Debit to expenses Account in Adjusting Entries LIabilities Revenues Adjusting Entries

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16. 16 Unearned Revenues Oct,31 Revenues and Receivables are Recorded to Service Given Nov. Cash Receipts Reduce Receivables

17. 17 Insurance Okt. 4 Oct, 31 Oct 50 Nov 50 Dec 50 Jan 50 Feb 50 Mar 50 Apr 50 Mey 50 June 50 July 50 August 50 Sept 50 Insurance policw One Year 600 Expired Insurance is as Insurance Expense

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19. 19 Accrued Revenue Oct, 2 Cash Advanced is Recorded as LIability Revenue Earned for Services Rendered

20. 20 Depreciation Oct. 1 Office Equipment is Recorded as Asset Office Equipment Oct.31 Recognition of Depreciation is as Depreciation Expense Oct 40 Nov 40 Dec 40 Jan 40 Feb 40 Mar 40 Apr 40 May 40 June 40 July 40 August 40 Sept 40 Office Equipment Depreciation=480/year

21. 21 Supplies Oct. 5 Purchased Supplies is Recorded as Assets Oct. 31 Using of Supplies is Recorded as Supplies Expenses

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23. 23 Ilustration 4: Adjusted Trial Balance Cipta Jasa Karya, Co Adjusted Trial Balance August, 31, 2008

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