1. Recording Transactions in the Financial Statement: the adjustments
Prof.ssa Barbara Sveva Magnanelli
Financial Accounting

2. Operating Profit On an ACCRUAL BASIS
Profit for the period on an accrual basis
Loss for the period on an accrual basis
Need for
ADJUSTMENTS

3. Adjustments of expenses
Standing expenses integration, to
charge the balance sheet with:
Standing expenses adjustments,
to write off the balance sheet:
depreciation allowances concerning fixed assets
certain, uncertain and deferred costs
devaluations of specific investments
costs of left-over commmodities
cost of left-over services
cost of remainders
cost of products done on the cheap

4. Adjustments of revenues
Current revenue integration, to
charge the balance sheet with:
Current revenue adjustments,
to write off the balance sheet:
certain, fixed or deferred revenues
advance revenues generated
by future performance

5. Depreciation and Amortization
The physiological and predictable decrease in the value of assets having a limited useful life.
“Depreciation” refers to tangible fixed assets, “amortization” refers to intangible fixed assets
Hence, it represents the portion of utility assigned by an asset to
long-term utilityin the balance sheet
It’s necessary to record at the end of the year:
THE DECREASE IN VALUE OF THE FIXED ASSETS
THE INCREASE OF THE COSTS

6. Depreciation and Amortization
On 1/01/0X a plant having a value of € and with a useful life of 10 years is purchased.
B.S.
I.S.
1/01/0X
BANK ACCOUNT
PLANT
B.S.
I.S.
31/12/0X
PLANT
DEPRECIATION
20.000

7. END-OF-YEAR OPERATIONS
Accruals and Payables
END-OF-YEAR OPERATIONS
ADVANCE PAYMENT
DELAYED PAYMENT
ADVANCE PAYMENT
DEFERRED LIABILITIES
DEFERRED PAYMENT
ACCOUNT PAYABLES
ADVANCE REVENUE
DEFERRED ASSETS
DEFERRED REVENUE
ACCOUNT RECEIVABLES

8. NOT COMPETENCE OF THIS YEAR
Pre-paid Expenses
On 1/10/0X the equivalent of € 120,000 is paid for an annual insurance contract
DURATION OF SERVICE
1/10/0X
31/12/0X
1/10/0X+1
PAYMENT
FISCAL YEAR OX
NOT COMPETENCE OF THIS YEAR
(PREPAID EXPENSE)

9. Pre-paid Expenses
On 1/10/0X the equivalent of € 120,000 is paid for an annual insurance contract
B.S.
I.S.
1/10/0X
BANK ACCOUNT
INSURANCE
B.S.
I.S.
31/12/0X
INSURANCE
PRE-PAID EXPENSES
90.000

10. NOT COMPETENCE OF THIS YEAR
Unearned Revenues
On 1/11/0X the equivalent of € 240,000 is collected for a six-month consultancy
DURATION OF SERVICE
1/10/0X
31/12/0X
1/10/0X+1
REVENUE
FISCAL YEAR OX
NOT COMPETENCE OF THIS YEAR
(UNEARNED REVENUE)

11. Unearned Revenues
On 1/11/0X the equivalent of € 240,000 is collected for a six-month consultancy
B.S.
I.S.
1/10/0X
BANK ACCOUNT
REVENUES FROM SERVICES
B.S.
I.S.
31/12/0X
REVENUES FROM SERVICES
UNEARNED REVENUES

12. COMPETENCE OF THIS YEAR
Accrued Revenues
On 1/10/0X an annual consultancy contract is drawn up for a total amount of € 240,000, deferred payment by the client.
DURATION OF SERVICE
1/10/0X
31/12/0X
1/10/0X+1
REVENUE and
PAYMENT
COMPETENCE OF THIS YEAR
(ACCRUED REVENUE)

13. Accrued Revenues
On 1/10/0X an annual consultancy contract is drawn up for a total amount of € 240,000, deferred payment by the client.
B.S.
I.S.
1/10/0X
B.S.
I.S.
31/12/0X
REVENUES FROM SERVICES
60.000
ACCRUED REVENUES
60.000

14. COMPETENCE OF THIS YEAR
Accrued Payables
On 1/9/0X a six-month lease contract is drawn up for a total amount of € 60,000, delayed payment.
DURATION OF CONTRACT
1/09/0X
31/12/0X
1/09/0X+1
SERVICE and
PAYMENT
COMPETENCE OF THIS YEAR
(ACCRUED PAYABLES)

15. Accrued Payables
On 1/9/0X a six-month lease contract is drawn up for a total amount of € 60,000, delayed payment.
B.S.
I.S.
1/10/0X
B.S.
I.S.
31/12/0X
ACCRUED PAYABLES
40.000
LEASE SERVISES
40.000

16. Left-Overs of Raw Materials
INCREASE IN INVENTORY VALUE
Anglo-saxon solution
PROFIT AND LOSS ACCOUNT UNDER ‘COSTS AND REVENUES FROM SALES’

17. Left-Overs of Raw Materials
During the fiscal year, goods for a total value of 1,000 are purchased (payment through bank deposits)
As at 31/12 the goods warehouse is valued at 100.
B.S.
B.S.
Bank deposits
- 1,000
Raw Materials inventory
100
I.S.
I.S.
Raw materials
+ 1,000
Raw Materials
+ 1,000
purchases
consumption
900

18. Left-Overs of Finished Products and WIP products
INCREASE IN PRODUCT STORE VALUE
Anglo-saxon solution
PROFIT AND LOSS ACCOUNT UNDER ‘COSTS AND REVENUES FROM SALES’

19. Left-Overs of Finished Products and WIP products
During the fiscal year, total production costs and revenues are equivalent to 10,000 and € 20,000 respectively
As at 31/12, 40 cars valued at 400 are still in stock
B.S.
B.S.
Finish Products Inventory
400
I.S.
I.S. …
Tot. Production costs + 10,000 …
Tot. Production costs+ 10,000
Revenues
+ 20,000
Changes in leftover of finish product