F2M3 Flashcards
Adjusting Journal Entries
Rules for adjusting journal entries
Must be recorded by end of the fiscal year and before preparation of FS
Never can involve the cash account
All entries will hit one income statement account and one balance sheet account.
Adjusting journal entries for Accrued interest with interest payments due during the year
Adjusting journal entry to record the interest accrued from receiving the loan till the end of the fiscal year. Debit interest expense Credit Interest payable
Amount (in this example got loan on November 1st): loan amount * interest % * (months incurring interest / 12)
For officers compensation expense, what do you do with officers bonuses for year 1 that were paid out in january (after year end)?
adjust officers compensation expense to include the bonus earned in year 1.
How to address this calculation: . In addition, rent equal to 5% of net sales over $300,000 per calendar year is payable on January 31 of the following year. Net sales for Year 1 were $550,000.
It says “over” 300,000 so you only are paying 5% of the difference in your net sales less the limit.
=550,000-300,000 =250,000
250,000*5%=12,500
Accrued Liabilities
Cash was paid before the expense was incurred
ex: payroll. employees work and then are paid. so its an accrued liability for booking purposes.
Calculating sales commissions payable. in this scenario, fixed salaries exceeding commissions are not back charged to them. And salaries are considered advances against commissions.
- Calculate commissions earned = in this case its net sales * %
- Adjust any of these upwards to meet their salary minimum (their fixed salary) = commissions accrued.
- Subtract salary advances (fixed salary) from their commissions accrued.
No interest payable will be recorded for a noninterest bearing note because:
the interest is implicit in the face value of the note and will already be accounted for in the carrying value of the note payable on the balance sheet.
