F1 M8 Adjusting Journal Entries Flashcards
When cash is received before the revenue is earned it is called ____.
Deferred revenue/unearned revenue
When cash is paid before the expense is incurred it is called ____.
Deferred expenses/prepaid expenses
When cash is received after the revenue has been earned it is called _____.
Accrued revenues (receivables)
When cash is paid after the expense has been incurred it is called _____.
Accrued expenses (liabilities)
What is the journal entry for unearned revenue/deferred revenue?
What is the entry for when the unearned revenue has been earned?
Dr: Cash
Cr: Unearned revenue
Dr: Unearned revenue
Cr: Revenue
What is the journal entry for prepaid expense/deferred expense? Where are the transactions at (Assets, liabilities, OE) What is the adjusting entry to reverse prepaid expenses and record incurred expense? When does this adjusting entry take place?
Dr: Prepaid expense
Cr: Cash
All assets
Dr: Expense
Cr: Prepaid expense
Over time we make this adjusting entry
What are the rules for recording adjusting journal entries?
Must be recorded ______.
Never touch _____.
All adjusting entries must hit one ____ and one ____.
Must be recorded by the end of the entity’s fiscal year before the preparation of financial statements.
Never touches cash.
All adjusting entries will hit one income statement account and one balance sheet account.
Adjusting Entry:
The company purchased a $300, 3 year insurance policy on 1/1/Y2 and expensed it all on the payment date.
What is the adjustment to Year 2 pretax income?
An increase of $200 to Y2 pretax income
Adjusting Entry:
$2,000 of credit sales made during Y2 were not recorded in the ledger because they had not been collected in cash.
What is the adjustment to Year 2 pretax income?
An increase of $2,000 to Y2 pretax income
Adjusting Entry:
Cash totaling $3,000 that was received in advance from customers was recorded to service revenue. Only 30% of the services had been performed by year-end.
What is the adjustment to Year 2 pretax income?
A decrease of $2,100 to Y2 pretax income
Adjusting Entry:
The accountant discovered that a $450 utility bill covering the month of December had not been entered in the AP system at year-end.
What is the adjustment to Year 2 pretax income?
A decrease of $450 to Y2 pretax income
Adjusting Entry:
$4,000 of rent was prepaid on 1/1/Y1, covering a four year rental period. No entry was recorded in Y2 relating to the prepayment.
What is the adjustment to Year 2 pretax income?
A decrease of $1,000 to Y2 pretax income
Adjusting Entry:
The direct write-off method (non-GAAP method) was used to write off a $650 bad debt in Year 2, although the company uses the allowance approach to estimate bad debts.
What is the adjusting journal entry?
What does this do to Year 2 pretax income?
Dr. Allowance for Uncollectables $650
Cr. Bad Debt Expense $650
It increases Y2 pretax income by $650
Adjusting Entry:
The company purchased $1,300 of raw materials at year-end which were shipped FOB shipping point and were in transit at the end of the year. The goods were not included in the actual year-end inventory count.
Do we own the materials?
What is the adjusting entry?
What does this do to Year 2 pretax income?
Yes, once it gets on the truck and it was in transit
Dr: Inventory $1,300
Cr: AP $1,300
It doesn’t affect Y2 pretax income
Adjusting Entry:
The company purchased available-for-sale securities during Y2 for $1,500. The fair value at year-end totaled $2,000 but no adjustment to fair value was recorded in the ledger.
What is the adjusting entry?
What does this do to Year 2 pretax income?
Dr: Valuation account for the securities $500
Cr: Unrealized gain on available for sale securities $500
No affect to Y2 pretax income
