Week 5 (balance day adjustments) Flashcards
(11 cards)
Types of balance day adjustments
- Accrual: new information
- Prepayments: existing information
Accrual adjustments
Where an income or expense is incurred before cashflow takes place
Accrued incomeAdjustment:
e.g.: complete a service but don’t get paid
Dr - Assets increase: Accounts receivable
Cr - Income increase: ___ income
Adjustment: When money is received
Dr- cash
Cr- Accounts receivable
Accrued expense
e.g.: business estimates its electricity consumption for period to be $5000 but doesn’t expect the account until the next period
Dr - Expense increase: ____ expense
Cr - Liability increase: ____ payable
Adjustment: When expense is paid
Dr - ____ payable
Cr - Cash
Prepaid income (initially labelled liability)
e.g.: cash has been received which has not been earnt
Dr - Cash
Cr - liabilities
Adjustment: Service been performed
Dr - Liabilities
Cr- Income
Prepaid income (initially labelled income)
e.g.: cash has been received which has not been earnt
Dr - Cash
Cr - income
Adjustment: turns it into a liability
Dr - Income
Cr- liability
Adjustment: Service been performed
Dr - Liabilities
Cr- Income
Basically just an extra step to correct mistake
Prepaid expense (initially labelled as asset)
e.g.: business pays for something in advance
Dr - Prepaid expense (asset)
Cr- Cash
Adjustment: thing being used up
Dr - Actual expense
Cr - Prepaid expense
Prepaid expense (initially labelled as expense)
e.g.: business pays for something in advance
Dr - Expense
Cr - Cash
Adjustment: turn it into an asset
Dr - Prepaid expense asset
Cr - Expense
Adjustment: thing being used up
Dr - Actual expense
Cr - Prepaid expense
Depreciation
on everything except land and current assets
Straight line method: linear depreciation occurs over its lifespan
Dr - Depreciation expense
Cr - Accumulated depreciation (negative asset)
The negative asset account is then applied to the asset
Direct write off method
When money owed can not be payed off
Dr - Bad debts (Expense)
Cr - Accounts receivable (Asset)
Allowance method
Allows for a proportion of the debt to be paid
Dr - Doubtful debts (expense)
Cr - Allowance for doubtful debts (negative asset)
Dr - Allowance for doubtful debts (negative asset)
Cr - Accounts receivable (asset)
