1. Chapter 8! The Accounting Cycle
Work Sheet and Adjusting Process
Unit 3 Test (cover chapter 6, 7 and 8, but we will cover only some portion of chapter 8) will be Tue Nov 18. DECA people will write the test on Wed lunch time.

2. Adjusting Entries
Typically only senior (or intermediate) accountants would make adjusting entries at the end of the fiscal period.
They make entries for revenues and expenses which have been accruing but have not yet been recorded.
Adjusting Entry: is a journal entry which assigns an amount of revenue and expense to the appropriate accounting period.
Adjusting entries bring a balance sheet accout to its true value.

3. Adjusting Entry
There are many different types of adjusting entries accountants make at the end of the fiscal period:
Prepaid Expense
Prepaid Insurance
Supplies adjustment
Unearned Revenue
Late-Arriving Purchase Invoice

4. Prepaid Insurance
Insurance premium is paid for assets (building, car etc) to protect (or insure) against fire, theft etc….
Journal Entry:
Purchased auto insurance on July 1 for 1 year policy. Business paid $2400 on July 1.
July 1 Prepaid Insurance 2400
Bank
Adjustment on Dec 31, 2013
Insurance Expense 1200
Prepaid Insurance 1200

5. Prepaid Insurance T account
Prepaid Insurance T account (J1) (D31) 1200 (Ending Balance on Dec 31)

6. Prepaid Expenses
An expense is paid in advance to benefit more than one accounting period.
Any current asset costs will be used up in the near future.
Example: Prepaid Insurance, Licenses, Rent and Advertising
Oct 1 you paid $5000 for radio ads which will go on for 5 months.
Oct 1 Prepaid Advertising 5000
Bank

7. Prepaid Expenses
Dec 31, you will make an adjusting entry: Advertising Expense 3000 Prepaid Advertising (asset) 3000 Prepaid Advertising (asset) (O31) (D31) 2000 (Ending balance D31)

8. Adjusting Entry for Unearned Revenue
Sometimes customer pays for service on December 15 for the service you will provide in January. Then Revenue Recognition says that accountant must make an adjusting entry because revenue is not earned yet.

9. Adjusting Entry for Unearned Revenue
For example, We to Me Care paid $1500 on December for accounting service which will be performed in January 2014.
Dr. Cr.
Dec 29 Bank 1500
Fees earned (Rev) 1500
Received fee for accounting service from We to Me

10. Adjusting Entry for Unearned Revenue
Dec 31 Fees earned
Unearned Revenue (liab) 1500
Adjusting Entry for Unearned Revenue (We to Me)
If I did not make the adjusting entry, then my revenue is too high for 2013 Income statement  Net Income is overstated.
This Unearned Revenue account is a liability to We to Me Care.

11. T account for Unearned Revenue
Fees earned (D31) (D29) 0 (Ending Balance Dec 31)

12. Classwork
Answer Review Questions – pg 275 #9, 10, 12, 16, 17, 18, 19, 20 and 21
Pg. 276 Ex #1 and 2(The rest you did not finish yesterday),
Ex# 3 and #4,(P277 and P278)