Chapter 8 - Adjusting Entries Flashcards
It is made to update the accounts and bring them to their correct balances.
Adjusting Journal Entries (AJE)
What are the purpose of Adjusting Journal Entries (AJE)?
To record and correct an account
What are the types of Adjusting Journal Entries?
Depreciation, Accruals, Deferrals (DAD)
A money that’s been earned, but has yet to be received.
Accrued Income
An expense that is recognized on the books before it has been paid.
Accrued Expense
It refers to allocation of cost over the useful life of a depreciable asset
Depreciation
Depreciation expenses are recorded in what period?
End of the Period (EOP)
Steps to record a depreciation
Step 1: Calculate annual depreciation
Step 2: Prorate (if within the period)
Step 3: Record AJE
This means adjusted for a specific time period. For example, if an employee is due a salary of $80,000 per year, and they join the company on July 1, their prorated salary for that year would be $40,000.
Prorated
This refers to the portion of credit sales that the company estimates as non-collectible
Doubtful accounts/Bad debts
Doubtful account/Bad debt expenses are recorded in what period?
(EOP)
A business has total accounts receivable of $2,000 on December 31, 20x1 before any adjustments. Of the total amount, it was estimated that $500 is doubtful of collection.
Bad debt expenses $500
Allowance for bad debts $500
“to record the bad debts expense for the period”
(take note that bad debt expenses is an asset, and allowance for bad debts is considered a contra asset)
An account that is presented in balance sheet accounts, except the “Owner’s Drawings” account.
Real Accounts
Advance collections of income are initially recorded using either the __________ or ___________.
liability method and income method
An expense that is already incurred but not yet paid.
Accrued expenses
