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Outline

1	PRINCIPLES OF ACCOUNTING Preparing Adjustments Part A
2	Adjustments Adjustments deal with the timing of revenues and expenses The question is whether they should be recorded in this period or in a later period
3	Accrual Basis Accrual Basis determines WHEN revenues and expenses are recorded Record revenues when earned Record expenses when incurred
4	Revenue Recognition Revenue is recorded in the period when it is earned Sales revenue is earned when the buyer takes possession of the goods Fees Revenue is earned when the service is nearly complete
5	Matching Concept Record expenses in the same period as the related revenue MATCH Expenses to the Revenues For example record the “cost of goods sold” in the same period as the sale of the goods But periodic expenses occur over time, so record them when they expire
6	Adjustment Accounts Adjustments always include at least two accounts 1. One Income Statement Account (Revenue or Expense) 2. One Balance Sheet Account (Asset or Liability)
7	Revenue or Expense Accounts Revenue accounts are normally credited Expense accounts are normally debited Debits = Credits So the Balance Sheet Account is posted on the side opposite from the Income Statement Account
8	Example
9	Adjustment Amount The adjustment amount is either the revenue earned or the expense incurred But instead of simply stating the amount, textbook problems often provide information to compute the change in the balance sheet account
10	Percentages Example
11	$500 fees for services provided to a client have not yet been billed
12	CORRECT!
13	$500 fees for services provided to clients have not yet been billed
14	CORRECT!
15	$500 fees for services provided to clients have not yet been billed
16	CORRECT!
17	The Balance Sheet Account
18	CORRECT!
19	An invoice of $200 received for repairs on a delivery vehicle has not yet been recorded
20	CORRECT!
21	An invoice of $200 received for repairs on a delivery vehicle has not yet been recorded
22	CORRECT!
23	An invoice of $200 for automobile repairs has not yet been recorded
24	Correct! Debit expenses
25	Consider Accounts Payable (AP)
26	Correct! Accounts Payable (AP) should be credited (Cr) because the other account was debited
27	Summary Adjustments include at least two accounts 1. Income Statement account 2. Balance Sheet account Debit expense accounts OR Credit revenue accounts Debits = Credits Post to the balance sheet account’s opposite side Adjustment amount is the revenue earned or the expense incurred (which is the change in the amount of the balance sheet account)