2. Hospitality Financial Accounting Week 3 Adjusting the Accounts Matakuliah: V0232 – Akuntansi Keuangan Hotel Tahun: 2009

3. 4-1 Guidelines to Report Revenue and Expenses Time Period Assumption Economic life of business can be divided into artificial time periods Revenue Recognition Principle Revenue recognized in the accounting period in which it is earned Matching Principle Expenses matched with revenues in the period when efforts are expended to generate revenues

4. 4-2 Depreciation PREPAYMENTASSETEXPENSE Cost of Truck$15,000 1/1/08 200820092010 Entry: Truck 15,000 Cash 15,000 Cash 15,000 DepreciationExpense 5,000 AccumulatedDepreciation 5,000 DepreciationExpense 5,000 AccumulatedDepreciation 5,000 CONTRA ASSET EXPENSE ASSET 12/31/0812/31/0912/31/10 DepreciationExpense 5,000 Statement Presentation: Balance Sheet AssetTruck$15,000 Contra AssetLess: Accum. Depr. 5,000 10,000 15,000 Book Value$10,000$ 5,000$ -0- AccumulatedDepreciation 5,000

5. 4-3 Prepayment Relationships PREPAYMENTS Benefits More Than One Accounting Period RECORD AS ASSET RECORD AS LIABILITY InitialEntry AdjustingEntry Prepaid Insurance1,200 Cash1,200 (Acquired one year policy) Insurance Expense100 Prepaid Insurance100 (One month expired) Cash6,000 Unearned Rent6,000 (Received one year’s rent) Unearned Rent500 Rent Revenue500 (One month earned) Benefits Consumed or Earned in Current Period

6. 4-3 Prepayment Relationships (continued) Account Effects: Balance Sheet Prepaid InsuranceUnearned Rent 1,200100500 6,000 Bal. 1,100Bal. 5,500 Income Statement Insurance ExpenseRent Revenue 100500

7. 4-4 Accrual Relationships ACCRUALS Expense or Revenue Not Yet Recorded RECORD EXPENSE RECORD REVENUE AdjustingEntry Salaries Expense500 Salaries Payable500 (Accrued salary owed) Salaries Payable500 Cash500 (Paid salaries) Accounts Receivable1,000 Service Revenue1,000 (Accrued revenue for services provided) Cash1,000 Accounts Receivable1,000 (Collected account receivable) SubsequentEntry

8. 4-5 Types of Adjusting Entries Type of AdjustmentReason for AdjustmentAccount Balances Before Adjustment Adjusting Entry 1. Prepaid Expenses(a) Prepaid expenses originally recorded in asset accounts have been used Assets Overstated Expenses Understated Dr. Expenses Cr. Assets 2. Unearned Revenues(b) Unearned revenues initially recorded in liability accounts have been earned Liabilities Overstated Revenues Understated Dr. Liabilities Cr. Revenues 3. Accrued Revenues(c) Revenues earned but not yet received in cash or recorded Assets Understated Revenues Understated Dr. Assets Cr. Revenues 4. Accrued Expenses(d) Expenses incurred but not yet paid in cash or recorded Expenses Understated Liabilities Understated Dr. Expenses Cr. Liabilities Each adjusting entry affects a balance sheet account and an income statement account.

9. 4-6 Examples of Adjusting Entries Instructions:For each entry indicate the name of the account debited and the account credited. Adjusting Entry Account DebitedAccount Credited 1. To record expired rent which had been prepaid 2. To record supplies used during the period 3. To record depreciation on furniture 4. To record unearned revenue that has been earned 5. To record salary owed but not paid 6. To record rent earned but not recorded.

10. 4-6 Examples of Adjusting Entries (continued) Account Debited Account Credited 1. Rent ExpensePrepaid Rent 2. Supplies ExpenseSupplies 3. Depreciation ExpenseAccumulated Depreciation 4. Unearned RevenueRevenue 5. Salary ExpenseSalary Payable 6. Rent ReceivableRent Revenue Answer:

11. 4-7 Posting of Adjusting Entries The following unadjusted accounts and related balances are provided at September 30: Accounts Receivable………………………………. $ 2,400 Supplies………………………………………… ….. 1,200 Salary Payable…………………………………….. -0- Unearned Revenue……………………………….. 500 Revenue………………………………………… ….. 15,000 Salary Expense…………………………………….. 2,100 Depreciation Expense…………………………….. -0- Accumulated Depreciation……………………….. 3,000 Instructions: Open T-accounts and post the adjusting entries indicated from the following data: a)Supplies on hand, $200. b)Revenue earned but not accrued, $900. c)Unearned revenue earned by not recorded, $400. d)Salary owed to employees, $700. e)Depreciation of $200 is recognized.

12. 4-7 Posting of Adjusting Entries (continued) Accounts ReceivableSuppliesSalary Payable 2,4001,000(a) 1,000-0- (b) 900(d) 700 3,300200700 Unearned RevenueSupplies ExpenseSalary Expense (c) 400500-0-2,100 (a) 1,000(d) 700 1001,0002,800 RevenueDepreciation ExpenseAccumulated Depreciation 15,000-0-3,000 (b) 900(e) 200 (c) 4002003,200 16,300

13. 4-8 Review Chapter Concepts Topic AppliedResultsJustification 1. Time Period AssumptionEconomic life of business is divided into time periods. To provide information to prepare financial statements and tax return 2. Revenue RecognitionRevenue is recorded in period earned. Requires adjusting entries. To record assets or decreases in liabilities and proper reporting of revenue earned. 3. Matching PrincipleRecord expenses in the period they occur. Requires adjusting entries. To record liabilities or use of assets and expenses incurred in earning revenues. 4. Accrual Basis AccountingApplies revenue recognition principle, matching principle, and time period assumption. To record revenue when earned and expenses when incurred.

14. 4-9 Prepayment—Alternative Treatment PREPAYMENTS Benefits More Than One Accounting Period RECORD AS EXPENSE RECORD AS REVENUE InitialEntry Insurance Expense1,200 Cash1,200 (Acquired one year policy) Prepaid Insurance1,100 Insurance Expense1,100 (Eleven months unexpired) Cash6,000 Rent Revenue6,000 (Received one year’s rent) Rent Revenue5,500 Unearned Rent5,500 (Eleven months unearned) AdjustingEntry

15. 4-9 Prepayment—Alternative Treatment (continued) Account Effects: Balance Sheet Prepaid InsuranceUnearned Rent 1,1005,500 Income Statement Insurance ExpenseRent Revenue 1,2001,1005,5006,000 Bal. 100Bal. 500