Chapter 3

ADJUSTING

NGHIỆP VỤ PHÂN BỔ TRONG KẾ TOÁN

© 2009 The McGraw-Hill

Companies, Inc.,
 Learning objectives

By the end of this chapter, you should be able to:

• apply the accruals and matching concepts to the periodic

measurement of income and expenses in the profit and loss account

• explain how this periodic measurement also affects the balance sheet

and, in particular, calculate the values of accruals and prepayments and

the carrying value of fixed assets

Learning objectives
Accrual Basis versus Cash Basis
Accrual basis accounting uses the adjusting process to recognize revenues when
earned and expenses when incurred (matched with revenues).

Cash basis accounting recognizes revenues when cash is received and records
expenses when cash is paid. This means that cash basis net income for a period is the
difference between cash receipts and cash payments.
 Matching principle –Basis of adjusting
Nguyên tắc phù hợp -Cơ sở của việc phân bổ

Revenue Recognition Principle

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

McGraw-Hill/Irwin Slide 7
 ADJUSTING ACCOUNTS
CÁC LOẠI TÀI KHOẢN CẦN PHÂN BỔ

Adjusting

Paid cash before Recognized expense Receive cash

expense recognized before cash before completed
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
 ADJUSTING ACCOUNTS
Adjusting accounts is a 3-step process:
Step 1: Determine what the current account balance equals.
Step 2: Determine what the current account balance should equal.
Step 3: Record an adjusting entry to get from step 1 to step 2.
 1. ADJUSTING PREPAID EXPENSES
PHÂN BỔ CHI PHÍ TRẢ TRƯỚC

Here is the check

Resources paid for for my 24-month
insurance policy.
prior to receiving
the actual benefits
Ex: prepaid insurance,
supplies, depreciation
Prepaid expense (assets) Expense (equity)

McGraw-Hill/Irwin Slide 9
 PREPAID INSURANCE
Ex1: On 1/12/09, FastForward paid $2,400 for insurance for 2-
years (24-months, December 2009 through November 2011).
FastForward recorded the expenditure as Prepaid Insurance on
31/12/09
Recording transaction on paying day and at 31, december, 2009.

Dec. 01 Prepaid insurance 2400

Cash 2400
a) Dec. 31 Insurance Expense 100
Prepaid Insurance 100

Prepaid Insurance Insurance Expense

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

McGraw-Hill/Irwin Slide 10
 Prepaid (Deferred) Expenses
Prepaid expenses refer to items paid for in advance of receiving their benefits.
Prepaid expenses are assets

1. Prepaid Insurance We use our 3-step process for this and all accounting
adjustments.
Step 1: We determine that the current balance of FastForward’s prepaid insurance is
equal to its $2,400 payment for 24 months of insurance benefits that began on
December 1, 2011.
Step 2: With the passage of time, the benefits of the insurance gradually expire and a
portion of the Prepaid Insurance asset becomes expense. For instance, one month’s
insurance coverage expires by December 31, 2011. This expense is $100, or 1y24
of $2,400, which leaves $2,300.
Step 3: The adjusting entry to record this expense and reduce the asset, along with
T-account postings, follows:
 2. ADJUSTING SUPPLIES
PHÂN BỔ CÔNG CỤ DỤNG CỤ

Ex2: During 2009, FastForward purchased $9,720 of

supplies.
On December 31, 2009, a count of the supplies indicated
$8,670 on hand, so $1,050 of supplies were used during
December.
What adjustment is required?
b) Dec. 31 Supplies Expense 1,050
Supplies 1,050

Supplies Supplies Expense

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

McGraw-Hill/Irwin Slide 11
 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

McGraw-Hill/Irwin Slide 13
 DEPRECIATION
Ex3: On December 1, 2009, 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, 2009.

Dec. 2009 $26,000 - $8,000

Depreciation = = $375 per month
Expense 48 months
McGraw-Hill/Irwin Slide 14
 DEPRECIATION

Dec. 01 Dr Equipment 26000

Cr Cash 26000
Let’s record depreciation expense for the month ended
December 31, 2009.

Dr. Cr.
c) Dec. 31 Depreciation Expense 375
Accumulated Depreciation - Equipment 375
To record monthly equipment depreciation

a contra asset account.

A contra account is an account linked with another account,

McGraw-Hill/Irwin Slide 15
 DEPRECIATION
Dr. Cr.
c) Dec. 31 Depreciation Expense 375
Accumulated Depreciation - Equipment 375
To record monthly equipment depreciation

Equipment Depreciation Expense

1/1 26,000 12/31 375

Accumulated Depreciation
12/31 375

McGraw-Hill/Irwin Slide 16
 DEPRECIATION

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

Total Assets

McGraw-Hill/Irwin Slide 17
 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 Revenue
Debit Unadjusted Credit
Adjustment Balance Adjustment

McGraw-Hill/Irwin Slide 18
 UNEARNED REVENUES
(OR DEFERRED REVENUES)
Ex4: On December 26, 2009, FastForward agrees to
provide consulting services to a client for a fixed fee
of $3,000 for 60 days. On this date, the client pays
the entire consulting fee in advance. FastForward
makes the following entry:
Dr. Cr.
Dec. 26 Cash 3,000
Unearned Revenue3,000
Consulting fees received in advance

Unearned Revenue
Dec. 26 3,000
McGraw-Hill/Irwin Slide 19
 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.
d) Dec. 31 Unearned Revenue 250
Consulting Revenue 250
To recognize 5-days of consulting fees.

Unearned Revenue Consulting Revenue

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

McGraw-Hill/Irwin Slide 20
 4. ADJUSTING ACCRUED EXPENSES
PHÂN BỔ CHI PHÍ PHẢI TRẢ KHÁC

We’re about one-half

Costs incurred in
done with this job and
a period that are want to be paid for
our work!
both unpaid and
unrecorded.

E.g: salaries expense, interest expense

Expense Liability
Debit Credit
Adjustment Adjustment

McGraw-Hill/Irwin Slide 21
 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, 31/12/09, falls on
a Wednesday. The last payday of 2009, is Friday, 26/12/09.

Last pay Next pay

date date
12/26/09 1/9/10

12/31/09 Record adjusting

Year end journal entry.
McGraw-Hill/Irwin Slide 22
 CALCULATE SALARIES EXPENSE FOR
DECEMBER 2009
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

 ACCRUED SALARIES EXPENSES

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

31/12/09, the employee has earned salaries of $210.
They will not be paid until the next Friday.

Dr. Cr.
e) Dec. 31 Salaries Expense 210
Salaries Payable 210
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

McGraw-Hill/Irwin Slide 23
 FUTURE PAYMENT OF
ACCRUED EXPENSES
On January 9, 2010, FastForward will pay the payroll for
the two weeks from December 26, 2009 through January
9, 2010. Here is the journal entry for the payroll:
Dr. Cr.
Jan 9 Salaries Payable (3 days @ $70) 210
Salaries Expense (7 days @ $70) 490
Cash (10 days @ $70) 700
Paid two-week salary

McGraw-Hill/Irwin Slide 24
 …
.

McGraw-Hill/Irwin Slide 24
 The following information relates to Fanning’s Electronics on December 31, 2011. The company,
which uses the calendar year as its annual reporting period, initially records prepaid and unearned
items in balance sheet accounts (assets and liabilities, respectively).
a) The company’s weekly payroll is $8,750, paid each Friday for a five-day workweek. Assume
December 31, 2011, falls on a Monday, but the employees will not be paid their wages until
Friday, January 4, 2012.
b) Eighteen months earlier, on July 1, 2010, the company purchased equipment that cost $20,000.
Its useful life is predicted to be five years, at which time the equipment is expected to be
worthless (zero salvage value).
c) On October 1, 2011, the company agreed to work on a new housing development. The company
is paid $120,000 on October 1 in advance of future installation of similar alarm systems in 24
new homes. That amount was credited to the Unearned Services Revenue account. Between
October 1 and December 31, work on 20 homes was completed.
d) On September 1, 2011, the company purchased a 12-month insurance policy for $1,800. The
transaction was recorded with an $1,800 debit to Prepaid Insurance.
e) On December 29, 2011, the company completed a $7,000 service that has not been billed and
not recorded as of December 31, 2011.

Required:
1. Prepare any necessary adjusting entries on December 31, 2011, in relation to transactions and
events a through e.
2. Prepare T-accounts for the accounts affected by adjusting entries, and post the adjusting entries.
Determine the adjusted balances for the Unearned Revenue and the Prepaid Insurance accounts.

McGraw-Hill/Irwin Slide 24
 END OF CHAPTER 3

McGraw-Hill/ Slide 39