The Adjustment Process

9.1

Exercises: page 308 #

The Adjusting Process

When preparing financial statements, the accountants must ensure:

• all accounts are brought up to date

• All late transactions are taken into account

• All calculations have been made correctly

• All GAAP’s have been complied with

Adjusting Entries

This usually assigns amounts of revenue or expense to the appropriate accounting period before finalizing the books for the fiscal period.

Adjusting Entries for Supplies

The supplies account is allowed to become inexact between statement dates.

When supplies are purchased it is debited in the supplies account. As they are being use up it is not credited.

At the end of the accounting period this must be fixed

Adjusting Entries for Supplies

The Adjusting entry:

1st do an inventory (count the remaining supplies)

Example: supplies debit of 7900

actual supplies on hand 900

Adjusting entry20-2 DR CR

Dec 31 Supplies expense

7000

Supplies 7000

Adjusting Entries for Supplies

The new accounts will look as follows:

Supplies

20-3Dec 31 7900

___________ 900

7000

Supplies Expense

20-2Dec 31 0 7000 __________ 7000

Adjusting entries for prepaid expenses

We use this when business items are paid for in advance and the item is not all used up during the fiscal period.

A prepaid expense is an item paid for in advance, where the benefits extend into the future