1. Chapter 8 – Adjusting Entries
Accounting Principles & Standards
Goal of the accountant is to produce financial statements that are ________. They must be:
Relevant –
Reliable –
Comparable -

2. Accrual Accounting
Definition – attempting to record revenues & expenses ____________, _______________
____________________.
At the end of the fiscal period, financial changes have happened in a business without the accountants knowledge. Examples:

3. ________Financial Statements
Income Statement Perspective
Revenue Recognition –
Matching Principle –
Balance Sheet Perspective
Cost Principle –
Principle of Conservatism – .

4. Adjusting Entry _____________________________
Made at the end of the __________ to bring the ____________in order to
_____________________________
__________________________
Let’s look at some examples…

5. Adjusting Entries for Supplies
When supplies are purchased, their cost is debited correctly to the Supplies account. _________
____________________________. At the end of the year we need to assess how much supplies are remaining and make an adjusting entry.
Supplies Supplies Expense
7900
6514
6514
1386
6514
Expense that matches the year’s revenue
Balance at the end of the year.
Adjusting Entry

6. Adjusting Entries for Prepaid Expenses
Prepaid expense is an item paid for in advance, but the benefits are extended into the future. Ex. Insurance.
The accountant must adjust the prepaid for the amount of the prepaid that is used for the year.
Example: On September 30 the company paid $1800 for insurance for the year. The company’s year end is December 31. How much insurance did they use up?

7. Adjusting Entries for Prepaids
Calculation: divided by 12 months to get the monthly insurance cost. = $150
Between Oct – Dec 3 months of insurance has been used - $150 X 3 months = $450
Prepaid Insurance Insurance Expense
1800
450
450
1350
450
Expense that matches the year’s revenue
Balance at the end of the year.
Adjusting Entry

8. Adjusting Entries for Late-Arriving Purchase Invoices or Bills
A good or service may be received before the end of the fiscal period, however the invoice may not arrive until after the last day of the fiscal period. These invoices still need to be included in the financial records for that fiscal period.
At this point you need to make an adjusting entry to record the late arriving invoices.

9. Adjusting Entries for Late-Arriving Purchase Invoices or Bills
Example: On January 15 the company received a telephone bill for $212 plus $15 in HST for telephone services ended on December 31.
The accounting entry:
DR Telephone Expense 212
DR HST Recoverable 15
CR A/P Bell Canada 227

10. Adjusting Entries for Unearned Revenue
Example: On November 1st, $500 is paid to a snow plough company for the next 5 months worth of snow ploughing. The company’s year end is Dec. 31. What is the adjusting entry:
Nov 1 entry – Debit Bank, Credit Revenue.
Dec 31 adjusting entry:
DR. Revenue $300
CR. Unearned Revenue $300 (Liability)

11. Adjusting Entries Recap
So far we have learned about 4 common adjusting entries:
Supplies
Insurance (Prepaid)
Late invoices
Unearned Revenue
No matter how complex the adjustment appears, you will be able to do it correctly if you use good common sense and match the revenue to the expenses for the year.