Task Team of FUNdaMENTAL aCCOUNtIng School of Business. Sun Yat-sen University 2004 half of the services have been proved to Cone. Smith should make the following entries to record earned revenue The adjusting entry will be Dr Unearned Revenue 25000 Converting assets to expenses is to charge the expired portion of prepaid xpenses to expe Example: On July 1, 2004, Smith Inc. paid $20000 for whole year's rent covered from Istof July to 30th of June. At the end of 2004, $10000 of rent expenses have occurred so Smith Inc. need to make the following entries to transfer the deferrals to The adjusting entry will be Dr Rent Expense 10000 Cr Prepaid Rent 10000 Amortization is also belongs to this type of adjustment, because Amortization is to convert the cost of fix asset to amortization expense Example: On January 1, 2004, a company purchased a piece of equipment for $100,000. The equipment is expected to have a useful life of five years and have a salvage value of $5000. Asume the company use the straight-line method We can calculated that the annual amortization value is 19000. [(100000-5000y5 the adjusting entry will be Dr Amortization Expense 19000 Cr Accumulated Amortization 19000 Adjusted Trial Balance The adjusted trial balance is used to check if there are any mistakes in preparing and posting the adjusted accounts and it is used for the financial statement Adjustments Financial Statements Adjusting entries bring the accounts up-to-date Adjustments are only made when financial statements are prepared Adjust entries will affect both the income statement and the balance sheet Adjustment will not affect the cash flow of the company Key points 1. Identify and analyze the events needed to adjust; 2. The preparation of adjusting entries Reference 1. Philip E. Fess and Carl S. Warren, Accounting Principles, South-Western Publishing Co 1987Task Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Yat-sen University 2004 half of the services have been proved to Cone. Smith should make the following entries to record earned revenue . The adjusting entry will be: Dr. Unearned Revenue 25000 Cr. Service Revenue 25000 Converting assets to expenses is to charge the expired portion of prepaid expenses to expense. Example: On July 1, 2004, Smith Inc. paid $20000 for whole year’s rent covered from 1stof July to 30th of June. At the end of 2004, $10000 of rent expenses have occurred so Smith Inc. need to make the following entries to transfer the deferrals to expenses. The adjusting entry will be: Dr. Rent Expense 10000 Cr. Prepaid Rent 10000 Amortization is also belongs to this type of adjustment, because Amortization is to convert the cost of fix asset to amortization expense. Example: On January 1,2004, a company purchased a piece of equipment for $100,000. The equipment is expected to have a useful life of five years and have a salvage value of $5000.Asume the company use the straight-line method. We can calculated that the annual amortization value is 19000. [(100000-5000)/5], the adjusting entry will be : Dr. Amortization Expense 19000 Cr. Accumulated Amortization 19000 Adjusted Trial Balance The adjusted trial balance is used to check if there are any mistakes in preparing and posting the adjusted accounts and it is used for the financial statement. Adjustments & Financial Statements Adjusting entries bring the accounts up-to-date. Adjustments are only made when financial statements are prepared. Adjust entries will affect both the income statement and the balance sheet. Adjustment will not affect the cash flow of the company. Key points 1. Identify and analyze the events needed to adjust; 2. The preparation of adjusting entries. Reference 1. Philip E. Fess and Carl S. Warren, Accounting Principles, South-Western Publishing Co., 1987