Unit 11-Adjusting the Books

Accounting 30S I Miss Schewczyk

Purpose: Adjusting the Books

• Employees work overtime or earn bonuses

• Changes have not been recorded by the end of the fiscal period

Adjusting the Books

• An adjusting entry is recorded at the end

of the accounting period to bring an asset

or liability account and revenue or expense

balance to its proper amount.

Adjustments

Prepaid Expenses

Supplies

Rent

Insurance

Depreciation

Prepaid Expenses

• Items paid for in advance of receiving their benefits

• Office supplies-current assets-unused

• When used-no longer assets-change to expense

Prepaid Expenses • Entries are made to record the

conversion of prepaid assets to expenses• To correct account balances for the

balance sheet and to record the appropriate expense for the period on the income statement

• These entries=adjusting entries

Prepaid Rent

• Rental lease:• Rent of $1700 a month• Must be paid in advance for three

months• April 1: cheque for $5100 is issued

in payment of April, May and June rent.April May June

Prepaid Rent

• Rent Expense is not debited

• Prepaid Rent is debited

Prepaid Rent

• End of April:

• Should Prepaid Rent be shown as

a current asset with a value of

$5100?

Prepaid Rent

• After one month: $1700 of asset

Prepaid Rent has been used

• Value of prepaid rent must be

reduced ($5100-1700=$3400)

April May June$1700 $1700 $1700

Prepaid Rent

• Value of prepaid rent must be reduced

($5100-1700=$3400)

• $1700 rent used record expense

• Adjusting entry

Prepaid Rent

• Adjusting entry

Apr.30 Rent Expense 1700

Prepaid Expense 1700

To record one month’s Rent Expense.