Definition and purpose of account adjustment Common types of account adjustments (e.g., Accrued Revenue ,Accrued Expenses ,Deferred Revenues ,Deferred Expenses) time issue Types of adjusting entries

1. We'llcome to Problem
SOLUTION
ACCOUNT ADJUSTMENT
By :
Abdul Ghaffar

2. ACCOUNT ADJUSTMENT
 The accounting cycle is like a circle. It begins with
transaction analysis and ends with closing the books.
Each and every steps in between is vital to the process.
There are eight general steps to the accounting cycle.
Today, we’re going to talk about the sixth step in the
cycle –adjustment to account.

3.  Account adjustment, also known as adjustment entries,
are entries that are made in the general journal at the
end of an accounting period to bring account balance up
to date. Unlike entries made to the general journal that
are a result of internal events. Internal events are those
events that have occurred in the business that don’t
involve an exchange of goods or service with another
entity.

4. TYPES OF ACCOUNT
ADJUSTMENTS
 Accrued Revenue
 Accrued Expenses
 Deferred Revenues
 Deferred Expenses

5. ACCRUED REVENUE
 Accrued revenue consists of income that has been
earned from customers but no payments has been
received. In other word, a good or service has been
provided to a customer, but the customer hasn’t paid
for it by the end of the accounting period. Accrued
revenue are recorded as receivable at the end of the
year tp reflect the amount of money the customer owe
the business for the goods or services they purchased.

6. ACCRUED EXPENSES
 Accrued expenses are expenses a company needs to
account for, but for which no invoices have been
received and no payments have been made. Here are
some common example of expenses that can be
accrued.
 Interest on loan, Goods received, Service received,
Wages for employees, Taxes, Commissions, Utilities,
Rent.

7. DEFERRED REVENUES
 Deferred revenues, also known as unearned revenue,
refers to advance payments a company receives for
products or services that are to be delivered or
performed in the future. The company that receives the
prepayments records the amount as deferred revenue, a
liability, on its balance sheet.

8. Deferred revenues
 Deferred revenue is a liability because it reflects
revenue that has not been earned and represents
products or service that are owed to a customer. As the
product or service is delivered over time, it is
recognized proportionally as revenue on the income
statement.

9. DEFERRED EXPENSES
 Deferred expenses, also called a prepaid expense, is a
cost that as been incurred but is recorded as an assets
until the related goods or service are consumed. In
other words, Money has been spent on goods or services
in the current period, but the goods and service have
not been consumed in the periods.

10. TIMMING ISSUES
 A fiscal year is a one-year period that companies and
governments use for financial reporting and budgeting.
A fiscal year is most commonly used for accounting
purposes to prepare financial statements. Although a
fiscal year can start on January 1st and end on
December 31st not fall fiscal year correspond with the
calander year. For examples, universites often begin
and end their fiscal years according to the school year.

11. Timing issues
 A fiscal year is important to publicly-traded
corporations and their investors since it includes
revenue and earning making year-to-year comparisons
possible. For tax purposes, the internal revenue service
allow companies to be either calander year taxpayers or
fiscal-year taxpayers.

12. Calendar year
 A calendar year is a one-year period that begins on
January 1st and ends on December 31, based on the
commonly-used Gregorian calendar. For individual and
corporate taxation purposes the calendar year
commonly coincides all of the years financial
information used to calculate income tax payable. A
calendar year for individual and many companies are
used as the fiscal year, or the one-year period on which
their payable taxes

13. continue
are calculated. Some companies choose to report their
taxes based on a fiscal year. In most cases, this period
starts on April 1st and ends on March 31st, and better
conforms to seasonality patterns or other accounting
concerns applicable to their businesses.

14. The difference between accrual
and basic accounting
 The difference between accrual and basic accounting
lies in the timing of when sales and purchases are
recorded in your accounts. Cash accounting recognizes
revenues and expenses only when money changes
hands, but accrual accounting recognizes revenues
when it’s earned, and expenses when they billed (but
not paid). We’ll look at both methods in detail, and how
each one would affect your business.

15. Recognizing revenues
 According to the principal of revenue recognition,
revenues are recognized in the period when it is earned
buyer and seller have entered Into transfer assets and
realized or realizable cash payment has been received
or collection of payment is reasonably assured.

16. Expense recognition
 The assets produced and sold or services rendered to
generate revenue also generate related expenses.
Accounting standards require that companies using the
accrual basis of accounting and match all expenses with
their related revenues for the period, so that the
income statement shows the revenues earned and
expenses incurred in the correct accounting period.

17. Types of adjusting entries
 Adjusting entries are classifies as either deferrals or
accruals.
 DEFERRALS: Prepaid expenses, Unearned revenues
 ACCRUALS: Accrued revenues, Accrued expense

18. deferral
 Prepaid expenses: Expenses paid in cash and recorded
as assets before they are used or consumed.
 Unearned revenues: Cash received and recorded as
liabilities before revenue is eaned.

19. accrual
 Accrued revenues: Revenues earned but not yet
received in cash or recorded.
 Accrued expenses: Expenses incurred but not yet paid in
cash or recorded.

20. Prepaid expenses

21. Prepaid expenses
 Prepaid expenses are future expenses that have been
paid in advance. In other words, prepaid expenses are
costs that have been paid but are not yet used up or
have not yet expired. Generally, the amount of prepaid
expenses that will be used up within one year are
reported on a company’s balance sheet as a current
assets. As the amount expired, the current assets is
reduced and the amount of the reduction is reported as
an expenses on the income statement.

22. Unearned revenue

23. Unearned revenue
 Unearned revenue is money received from a customer
for work that has not yet been performed. This is
advantage from a cash flow perspective for the seller,
who now has the cash to perform the required service.
Unearned revenue is a liability for the recipient of the
payment, so the initial entry is a debit to the cash
account and the a credit to the unearned revenue
account.

24. Accrued revenues

25. Accrued revenue
 Accrued revenue is a sale that has been recognized by
the seller, but which has not yet been billed to the
customers. This concepts is used in businesses where
revenue recognition would otherwise be unreasonably
delayed. Accrued revenue is quite common in the series
industries, since billing may be delayed for several
months, until the end of the projects or on designated
milestone billing dates. Accrued revenue is much less
common in manufacturing businesses, since invoice are
usually issued as soon as products are shipped.

26. Accrued expenses

27. Accrued expenses
 Accrued expenses is expense which has been incurred
but not yet paid. Expense must be recorded in the
accounting period in which it is incurred. Therefore,
accrued expense must be recognized in the accounting
period in which it occurs rather than in the following
period in which it will be paid. As expense will be
debited to recorded the accrued expense, a
corresponding payable must be created to account for
the credit side of the transaction.

28. Adjusting entries for
deferrals
 Deferrals are either prepaid expense or unearned
revenue. Companies make adjustment for deferrals to
record the portion of the deferrals that represented the
expense incurred or the revenue earned in the current
period.

29. Adjusting entries for accruals
 The second category of adjusting entries is accruals
companies make adjusting entries for accrual to record
revenue earned and expense incurred in the current
accounting period that have not been recognized
through daily entries.

30. Financial statement from
adjusted trial balance.
 List of all balance of ledger account after the
preparation of adjusting entries. Ensures arithmetic's
accuracy after making the adjustment entries. Contains
balances of assets liabilities equities, revenues, and
expense. primary basic for the preparation of financial
statement.

31. Adjusted trial balance trilia
company
ENTRIES
01 Salaries and wages expenses 16200
02 Supplies expenses 1300
03 Rent expenses 13000
04 Insurance expenses 1500
05 Depreciation 500
06 Acculated depreciation-equipment 4000
07 a/payable 6000
08 Salaries and wages payable 1200

32. 09 Unearned rent revenue 1100
10 Owner capital 16000
11 Service revenue 34000
12 Rent revenue 12900
13 cash 11000
14 a/receivable 12500
15 supplies 1200
16 Prepaid insurance 3000
17 equipment 15000

33. Trilia company
adjusted trial balances
s.n
o
Name of account l.f
debit credit
01 cash ** 11000
02 A/recivable ** 12500
03 supplies ** 1200
04 Prepaired insurance ** 3000
05 equipment ** 15000
06 Acculated depreciation-
equipment
** 4000
07 Account payable ** 6000
08 Salaries and wages
payable
** 1200
09 Unearned rent revenue ** 1100

34. Trilia company
adjusted trial balance
s.n
o
Name of account l.f debit credit
10 Owner capital ** 16000
11 Service revenue ** 34000
12 Rent revenues ** 12900
13 Supplies expenses ** 1300
14 Rent expenses ** 13000
15 Insurance expenses ** 1500
16 drepreciation ** 500
17 Salaries and wages
explain
** 16200
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35. Trilia company
balance sheet
s.no Assets
01 Cash 11000
02 Account receivable 12500
03 Supplies 1200
04 Prepaired insurance 3000
05 Equipment 15000
06 Less accum drepreciation equipment (4000)
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total assets
38700

36. Continue……
Liabilities and owner
equity
07 Account payable 6000
08 Salaries and wages payable 1200
09 Unearned rent revenue 1100
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total liabilities
8300
10 Owner equity 3040
0
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------
Total liabilities and owner equity 3870
0

37. Thank You