2. 8-1 ADJUSTMENTS CHAPTER 8

3. 8-2Adjustments ? When are adjustments finished? ! At the end of the accounting period, usually the end of a month

4. 8-3 Accruals Adjustments Defferals Defferrals and Accruals Not mentioned postponement of expenses and revenues paid or received before

5. 8-4Deferrals Apportioning recorded revenues Apportioning recorded expenses DEFERRALsDEFERRALs

6. 8-5 an expense of the month Prepaid Expenses At the end of each month Part of prepaid expenses expire assets exaggerated expenses understated or

7. 8-6Examples Suppose that $500 of photocopy supplies and $300 of office supplies are used up at the end of March.

8. 8-7 Analysis of Example Assets decreased. Owner’s equity decreased. Decreases in assets are recorded by credits. Decreases in owner’s equity are recorded by debits. Decreases in owner’s equity are recorded by debits to Photocopy Supplies Expense and Office Supplies Expense. Decreases in assets are recorded by credits to Photocopy Supplies and Office Supplies.

9. 8-8

10. 8-9 Dr. Photocopy Supplies Expense $500 Cr.Photocopy Supplies $500 Entries for the example Dr. Office Supplies Expense $300 Cr. Office Supplies $300

11. 8-10Exampels On March 6, George Ross Photocopy Company paid $4,800 for a year’s rent in advance.

12. 8-11 Asset decreased. Owner’s equity decreased. Decreases in assets are recorded by credits. Decreases in owner’s equity are recorded by debits. Decrease in owner’s equity is recorded by a debit to Rent Expense. Decrease in assets is recorded by a credit to Prepaid Rent. Analysis

13. 8-12 Dr. Rent Expense $400 Cr. Prepaid Rent $400 Entries for the example

14. 8-13Example George Ross Photocopy Company paid $4,800 for a year’s rent in advance.

15. 8-14 Analysis of transaction Asset decreased. Owner’s equity decreased. Decreases in assets are recorded by credits. Decreases in owner’s equity are recorded by debits. Decrease in owner’s equity is recorded by a debit to Rent Expense. Decrease in assets is recorded by a credit to Prepaid Rent.

16. 8-15 Dr. Rent Expense $400 Cr.Prepaid Rent $400 ENTRIES

17. 8-16EXAMPLE On March 8, the agency paid $600 for a one-year insurance policy. As each day of the month passed, a part of the expenditure expired.

18. 8-17 Assets decreased. Owner’s equity decreased. Decreases in assets are recorded by credits. Decreases in owner’s equity are recorded by debits. Decrease in owner’s equity is recorded by ad debit to Insurance Expense. Decrease in asset is recorded by a credit to Prepaid Insurance. Analysis of Transaction

19. 8-18 Dr. Insurance Expense $50 Cr. Prepaid Insurance $50 Entries

20. 8-19 Unearned revenue is liability It indicates that the company should pay money or service Unearned Revenues

21. 8-20 Illustration On March 14, George’s agency received $1,300 as an advance fee for copying works to be done for an advertisement agency. Suppose that $500 of the copying works was finished

22. 8-21 Entries Dr. Unearned Photocopy Fees $500 Cr. Photocopy Fees Earned $500

23. 8-22 Depreciation of plant assets On March 7, the George Ross Photocopy Company purchased photocopy equipment and office equipment for $2,000 and $5,300 respectively.

24. 8-23 Calculation Annual Depreciation for Photocopy Equipment = ($2,000-0)/5 = $400 Annual Depreciation for Office Equipment = ($5,300 - 0)/5 = $1,060

25. 8-24 WE ARE SAILING RIGHT ALONG!!