ĐẠI HỌC FPT CẦN THƠ

Chapter 3

ADJUSTING

NGHIỆP VỤ PHÂN BỔ TRONG KẾ TOÁN

Chapter 3: Adjusting Slide 1

 Objectives

After learning you should be able to:

 Explain the importance of periodic reporting and the

time period assumption.

 Explain accrual accounting and how it improves

financial statement.

 Identify the types of adjustments and their purpose.

Chapter 3: Adjusting Slide 2

 CONTENTs

The content of this chapter:

 The Accounting period.

 Accrual Basic vs Cash Basic

 Adjusting Accounts.

Chapter 3: Adjusting Slide 3

 MATCHING PRINCIPLE – BASIS OF ADJUSTING
NGUYÊN TẮC PHÙ HỢP - CƠ SỞ CỦA VIỆC PHÂN BỔ

 Revenue Recognition Principle

 Matching Principle Now that we have
recognized the
revenue, let’s see
Summary
what expenses we
of Expenses
incurred to generate
Rent $1,000 that revenue.
Gasoline 500
Advertising 2,000
Salaries 3,000
Utilities 450

Chapter 3: Adjusting Slide 4

 ACCRUAL BASIS vs. CASH BASIC OF
ACCOUNTING

ACCRUAL BASIS OF ACCOUNTING CASH BASIS OF ACCOUNTING

• Adheres to the  Revenue recorded only when
– Revenue recognition cash received.
principle  Expense recorded only when
– Matching principle cash paid.
• Revenue recorded when
earned, not only when cash
received.
• Expense recorded when
services or goods are used or
consumed in the generation
of revenue, not only when
cash paid.

Chapter 3: Adjusting Slide 5

 ADJUSTING ACCOUNTS
CÁC LOẠI TÀI KHOẢN CẦN PHÂN BỔ

Adjusting

Paid cash before Receive cash

Recognized expense
expense recognized before completed
before cash payment
work

1. 5. Unearned
Prepaid 2. 3. 4. Accrual revenue
expense Supplies Depreciation expense Phân bổ
Phân bổ Phân bổ Trích khấu Ghi nhận chi doanh thu
chi phí công cụ hao TSCĐ phí phải trả chưa thực
trả trước hiện

Chapter 3: Adjusting Slide 6

 1. ADJUSTING PREPAID EXPENSES
PHÂN BỔ CHI PHÍ TRẢ TRƯỚC
Here is the check
Resources paid for for my 24-month
prior to receiving insurance policy.
the actual benefits
Ex: prepaid insurance, rent,
supplies, depreciation

Prepaid expense (assets) Expense (equity)

Expense (equity)

Cr Dr

Chapter 3: Adjusting Slide 7

 PREPAID INSURANCE
Ex1:
On 1/12/15, FastForward paid $2,400 for insurance for 2-
years (24-months, December 2015 through November 2017).
FastForward recorded the expenditure as Prepaid Insurance on
31/12/15
Recording transaction on paying day and at 31, December, 2015.

Prepaid Insurance Insurance Expense

Dec. 1 2,400 Dec. 31 100 Dec. 31 100
Bal. 2,300

Chapter 3: Adjusting Slide 8

 PREPAID INSURANCE
Ex1: On 01/12/15, FastForward paid $2,400 for insurance for 2-years (24-
months, December 2015 through November 2017).
FastForward recorded the expenditure as Prepaid Insurance on 31/12/15.

After adjusting and posting, the $100 balance in Insurance Expense and the $2,300 balance in
Prepaid Insurance are ready for reporting in financial statements. Not making the adjustment
on or before December 31 would (1) understate expenses by $100 and overstate net income by
$100 for the December income statement and (2) overstate both prepaid insurance (assets) and
equity (because of net income) by $100 in the December 31 balance sheet. (Exhibit 3.2
showed that 2016’s adjustments must transfer a total of $1,200 from Prepaid Insurance to
Insurance Expense, and 2017’s adjustments must transfer the remaining $1,100 to Insurance
Expense.) The following table highlights the December 31, 2015, adjustment for prepaid
insurance.
Chapter 3: Adjusting Slide 9
 2. ADJUSTING SUPPLIES
PHÂN BỔ CÔNG CỤ DỤNG CỤ
Ex2:
During 2015, FastForward purchased $9,720 of supplies.
On December 31, 2015, a count of the supplies indicated $8,670
on hand, so $1,050 of supplies were used during December.

What adjustment is required?

Supplies Supplies Expense

Bought 9,720 Dec. 31 1,050 Dec. 31 1,050
Bal. 8,670

Chapter 3: Adjusting Slide 10

 3. ADJUSTING DEPRECIATION
PHÂN BỔ KHẤU HAO TÀI SẢN CỐ ĐỊNH

Depreciation is the process of allocating the

cost of a plant asset over its useful life in a
systematic and rational manner.

Straight-Line Asset Cost - Salvage Value

Depreciation =
Expense Useful Life

Chapter 3: Adjusting Slide 11

 DEPRECIATION
MỘT SỐ KHÁI NIỆM VỀ KHẤU HAO

• Salvage value (Giá trị còn lại): the estimated amount that an
entity would currently obtain from disposal of the asset after
deducting the estimated costs of disposal, if the asset were
already of the age and in the condition expected at the end of its
useful life.

• Useful life (thời gian sử dụng hữu ích): the period over which an
asset is expected to be available for use by the entity

• Accumulated depreciation: hao mòn lũy kế

Chapter 3: Adjusting Slide 12

 DEPRECIATION
Ex3:
On December 1, 2015, FastForward purchased equipment for $26,000
cash.
The equipment has an estimated useful life of four years (48 months)
and FastForward expects to sell the equipment at the end of its life for
$8,000 cash.
Let’s record depreciation expense for the month ended December
31, 2015.

Dec. 2015
Depreciation
Expense =

Chapter 3: Adjusting Slide 13

 DEPRECIATION

Let’s record depreciation expense for the month ended

December 31, 2015.

Dr. Cr.

To record monthly equipment depreciation

Accumulated depreciation is
a contra asset account.

Chapter 3: Adjusting Slide 14

 DEPRECIATION
Dr. Cr.

To record monthly equipment depreciation

Equipment Depreciation Expense

1/1 26,000 12/31 375

Accumulated Depreciation
12/31 375

Chapter 3: Adjusting Slide 15

 DEPRECIATION

FastForward
Partial Balance Sheet
At December 31, 2009
Equipment is
Assets $
shown net of
Cash
accumulated
Equipment $ 26,000 depreciation.
Less: accumulated deprec. (375) 25,625

Total Assets

Chapter 3: Adjusting Slide 16

 4. ADJUSTING ACCRUED EXPENSES
PHÂN BỔ CHI PHÍ PHẢI TRẢ KHÁC

Costs incurred in We’re about one-half

done with this job and
a period that are want to be paid for our
both unpaid and work!

unrecorded

E.g: salaries expense, interest expense

EXPENSE LIABILITY
Expense Liability
Debit Credit
Adjustment Adjustment

Chapter 3: Adjusting Slide 17

 EXAMPLE: ACCRUED SALARIES EXPENSES
VÍ DỤ: PHẢI TRẢ CÔNG NHÂN VIÊN

Ex5:
FastForward’s employee earns $70 per day and is paid
every two weeks on Friday. Year-end, 31/12/15, falls on a
Wednesday. The last payday of 2015, is Friday, 26/12/15.

Last pay Next pay

date date
12/26/15 1/9/16

12/31/15 Record adjusting

Year end journal entry.

Chapter 3: Adjusting Slide 18

 CALCULATE SALARIES EXPENSE
FOR DECEMBER 2015

Mon Tue Wed Thu Fri Sat Sun

1 2 3 4 5 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 25 26 27 28
29 30 31

Day of salary payment

Chapter 3: Adjusting Slide 19

 ACCRUED SALARIES EXPENSES

From 26/12 until year-end is three working days.

31/12/15, the employee has earned salaries of $210.
They will not be paid until the next Friday.

Dr. Cr.

To accrue 3 days' salary (3 x $70)

Salaries Expense Salaries Payable
Dec.12 700 Dec. 31 210
Dec.26 700
Dec. 31 210
Bal. 1,610

Chapter 3: Adjusting Slide 20

 FUTURE PAYMENT OF
ACCRUED EXPENSES
On January 9, 2016, FastForward will pay the payroll for
the two weeks from December 26, 2015 through January
9, 2016. Here is the journal entry for the payroll:

Dr. Cr.

Paid two-week salary

Chapter 3: Adjusting Slide 21

 5. ADJUSTING UNEARNED REVENUES
PHÂN BỔ DOANH THU CHƯA THỰC HIỆN

We will apply this cash

Cash received in you gave us towards
advance of providing your total consulting fees.
products or services.

LIABILITY
Liability Revenue
REVENUE
Debit Unadjusted Credit
Adjustment Balance Adjustment

Chapter 3: Adjusting Slide 22

 UNEARNED REVENUES
(OR DEFERRED REVENUES)
Ex4:
On December 26, 2015, FastForward agrees to provide
consulting services to a client for a fixed fee of $3,000 for
of $3,000
60 days. On thisfordate,
60 days. On this
the client date,
pays thethe clientconsulting
entire pays
fee in the entire consulting fee in advance. FastForward
advance.
FastForward makes makes
thethe following
following entry:
entry:
Dr. Cr.

Consulting fees received in advance

Dec. 26 3,000 Dec. 26 3,000

Chapter 3: Adjusting Slide 23

 UNEARNED REVENUES
On December 31, earns some of the 5-days of
consulting fees. Each day that passes results in
consulting fees of $50 ($3,000 ÷ 60).
Dr. Cr.

To recognize 5-days of consulting fees.

Unearned Revenue Consulting Revenue

Dec 31 250 Dec 26 3,000 Dec. 31 250
Bal 2,750

Chapter 3: Adjusting Slide 24

 ADJUSTED TRIAL BALANCE
FAST FORWARD
Trial Balance
December 31, 2015
Unadjusted Trial Adjusted Trial
Adjustments
Balance Balance
Acct No Account Title Debit Credit Debit Credit Debit Credit
Cash $ 4,350 $ 4,350
Accounts receivable $ - $ 1,800 $ 1,800
Supplies $ 9,720 $ 1,050 $ 8,670
Prepaid insurance $ 2,400 Balance Sheet $is 100 $ 2,300
Equipment $ 26,000 prepared last. Statement
$ 26,000
Accumulated depreciation - Equip. $ - $ 375 $
of O.E. 375
is
Accounts payable
A
$ 6,200
= L + E $ 6,200
Salaires payable $ - $ 210 second
$ 210
Unearned consulting revenue $ 3,000 $ 250 $ 2,750
C. Taylor, Capital $ 30,000 $ 30,000
C. Taylor, Withdrawals $ 200 $ 200
Consulting revenue $ 5,800 $ 250 $ 7,850
Income
$ 1,800
Rental revenue Statement
$ 300 is $ 300
Depreciation expense - Equip $ prepared
- first:
$ 375 $ 375
Salaries Expense $ 1,400 $ 210 $ 1,610
Insurance Expense $
Revenue
-
- $ 100 $ 100
Rent Expense $ 1,000Expense $ 1,000
Supplies Expense $ - $ 1,050 $ 1,050
Utilities expense $ 230 $ 230
Chapter 3: Adjusting
Totals $ 45,300 $ 45,300 $ 3,785 $ 3,785 $ 47,685 $ 47,685
Slide 25
 Summary of Adjusting Entries
Rules:
• Never involve cash.
• Either increase expense (debit) or revenue account (credit).
• When worded “accrued”, record/journalize the stated amount.
Prepaid & Accrual are opposites:
• Prepaid expense is paid first and expensed later.
• Accrued expense is incurred first and paid later.
• Unearned revenue – cash is received first and revenue earned later.
• Accrued revenue – revenue is earned first and cash received
received later.
Purposes:
 To properly measure net income for the period => The entry affects a
revenue or an expense.
 To update the balance sheet => The entry affects an asset or a liability.
Chapter 3: Adjusting Slide 26
 END OF CHAPTER 3

Chapter 3: Adjusting Slide 27