Chapter 3Adjusting the Accounts**Lilik Purwanti, Pengantar Akuntansi IDisiapkan oleh:Dra. Lilik Purwanti, M.Si, AKAccounting Principles, Ninth Edition

Lilik Purwanti, Pengantar Akuntansi I

Study ObjectivesExplain the time period assumption.Explain the accrual basis of accounting.Explain the reasons for adjusting entries.Identify the major types of adjusting entries.Prepare adjusting entries for deferrals.Prepare adjusting entries for accruals.Describe the nature and purpose of an adjusted trial balance.**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Types of adjusting entriesAdjusting entries for deferralsAdjusting entries for accrualsSummary of journalizing and posting

Timing Issues

Fiscal and calendar yearsAccrual- vs. cash-basis accountingRecognizing revenues and expensesPreparing the adjusted trial balancePreparing financial statements

The Basics of Adjusting Entries

The Adjusted Trial Balance and Financial Statements

Adjusting the Accounts**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Generally a month, a quarter, or a year.Fiscal year vs. calendar yearDikenal dengan Asumsi PeriodisitasTIMING ISSUESAkuntan membagi masa ekonomisuatu perusahaan ke dalam beberapa periode waktu. (Time Period Assumption).Jan.Feb.Mar.Apr.Dec.. . . . .**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Timing IssuesThe time period assumption states that:a.revenue should be recognized in the accounting period in which it is earned.b. expenses should be matched with revenues.c. the economic life of a business can be divided into artificial time periods.d. the fiscal year should correspond with the calendar year.Review**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Accrual-Basis AccountingTransactions dicatat pada periode terjadinya.Revenues diakui ketika diperoleh bukan ketika kas diterima. Expenses diakui ketika terjadi, bukan ketika dibayar.Timing IssuesAccrual- vs. Cash-Basis Accounting**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Cash-Basis AccountingRevenues diakui ketika kas diterima.Expenses diakui ketika kas dibayar. Cash-basis accounting tidaks esuai dengangenerally accepted accounting principles (GAAP = prisip akuntansi yang berlaku umum).Timing IssuesAccrual- vs. Cash-Basis Accounting**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Prinsip Pengakuan RevenueTiming IssuesPengakuan Revenues and ExpensesCompanies mengakui revenue pada perioda akuntansi dimana pendapatan earned (diperoleh).Pada perusahaan jasa, revenue diperoleh ketika jasa telah dilakukan.**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Matching Principle (Prinsip Penandingan)Timing IssuesRecognizing Revenues and ExpensesPenandingan expenses with revenues pada periode ketika perusahaan berusaha untuk menggenerate revenues.The expenses follow the revenues.**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

*Lilik Purwanti, Pengantar Akuntansi I*One of the following statements about the accrual basis of accounting is false. That statement is:Events that change a companys financial statements are recorded in the periods in which the events occur.Revenue is recognized in the period in which it is earned.The accrual basis of accounting is in accord with generally accepted accounting principles.Revenue is recorded only when cash is received, and expenses are recorded only when cash is paid.ReviewTiming Issues

Lilik Purwanti, Pengantar Akuntansi I

One of the following statements about the accrual basis of accounting is false. That statement is:Events that change a companys financial statements are recorded in the periods in which the events occur.Revenue is recognized in the period in which it is earned.The accrual basis of accounting is in accord with generally accepted accounting principles.Revenue is recorded only when cash is received, and expenses are recorded only when cash is paid.ReviewTiming Issues**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Adjusting entries memungkinkan melaporkan jumlah yang benar on the balance sheet and on the income statement.A company harus membuat adjusting entries setiapkali menyusun financial statements.The Basics of Adjusting Entries**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

*Lilik Purwanti, Pengantar Akuntansi I*Accrual Basis of AccountingRevenue reported when earned (pendapatan dilaporkan saat diperoleh)Expense reported when incurred (beban dilaporkan saat terjadi)Properly matches revenues and expenses in determining net income (penandingan pendapatan dan beban untuk menentukan laba bersih)Requires adjusting entries at end of period (perlu jurnal penyesuaian pada akhir periode)

Lilik Purwanti, Pengantar Akuntansi I

*Lilik Purwanti, Pengantar Akuntansi I*Adjusting entries are made to ensure that:a. expenses are recognized in the period in which they are incurred.b. revenues are recorded in the period in which they are earned.c. balance sheet and income statement accounts have correct balances at the end of an accounting period.d. all of the above.ReviewTiming Issues

Lilik Purwanti, Pengantar Akuntansi I

Adjusting entries are made to ensure that:a. expenses are recognized in the period in which they are incurred.b. revenues are recorded in the period in which they are earned.c. balance sheet and income statement accounts have correct balances at the end of an accounting period.d. all of the above.ReviewTiming Issues**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

*Lilik Purwanti, Pengantar Akuntansi I*TYPES OF ADJUSTING ENTRIESDeferred Expenses (Prepaid Expenses)Beban yang ditangguhkan, termasuk pemakaian aset tetap (depresiasi)Deferred Revenue (Unearned Revenue)Pendapatan yang ditangguhkan/diterima dimukaAccrued Expenses (Accrued Liabilities)Beban yang terhutang/masih harus dibayarAccrued Revenues (Accrued Expenses)Pendapatan yang masih harus diterima

Lilik Purwanti, Pengantar Akuntansi I

Trial Balance Each account is analyzed to determine whether it is complete and up-to-date.Illustration 3-3Trial BalanceSO 4 Identify the major types of adjusting entries.**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Deferrals are either: Prepaid expenses OR Unearned revenues.Adjusting Entries for DeferralsSO 5 Prepare adjusting entries for deferrals.**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Adjusting Entries for Prepaid ExpensesPembayaran kas yang dicatat sebagai asset karena service or benefit akan diterima in the future.insurancesuppliesadvertisingCash PaymentExpense RecordedBEFORErentmaintenance on equipmentfixed assets (depreciation)Contoh Prepayments:**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Prepaid ExpensesCosts that expire sesuai dengan berlalunya waktu or melalui penggunaan.Adjusting entries (1) untuk mencatat expenses yang terpakai ke periode akuntansi sekarang, and (2) untuk menunjukkan costs yang belum terpakai dalam akun asset.Adjusting Entries for Prepaid Expenses**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Adjusting Entries for Prepaid ExpensesAdjusting entries for prepaid expensesIncreases (debits) an expense account and Decreases (credits) an asset account.Illustration 3-4**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Illustration: Pioneer Advertising Agency purchased advertising supplies costing $2,500 on October 5. Sierra recorded the payment by increasing (debiting) the asset Advertising Supplies. This account shows a balance of $2,500 in the October 31 trial balance. An inventory count at the close of business on October 31 reveals that $1,000 of supplies are still on hand.Advertising supplies1,500Advertising supplies expense1,500Oct. 31Illustration 3-5Adjusting Entries for Prepaid Expenses**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Illustration: On October 4, Pioneer Advertising Agency paid $600 for a one-year fire insurance policy. Coverage began on October 1. Pioneer recorded the payment by increasing (debiting) Prepaid Insurance. This account shows a balance of $600 in theOctober 31 trial balance. Insurance of $50 ($600 / 12) expires each month.Prepaid insurance50Insurance expense50Oct. 31Illustration 3-6Adjusting Entries for Prepaid Expenses**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

DepreciationBuildings, equipment, and vehicles (long-lived assets) are recorded as assets, rather than an expense, in the year acquired.Companies report a portion of the cost of a long-lived asset as an expense (depreciation) during each period of the assets useful life (Matching Principle).Adjusting Entries for Prepaid Expenses**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

*Lilik Purwanti, Pengantar Akuntansi I*LandLand has an infinite life; therefore, it does not depreciate.

Lilik Purwanti, Pengantar Akuntansi I

*Lilik Purwanti, Pengantar Akuntansi I*BuildingA building has a limited life, so it must be depreciated. The contra account used in the adjusting entry is Accumulated DepreciationBuilding

Lilik Purwanti, Pengantar Akuntansi I

*Lilik Purwanti, Pengantar Akuntansi I*EquipmentBecause equipment has a limited life, it depreciates. The contra account used is Accumulated DepreciationEquipment

Lilik Purwanti, Pengantar Akuntansi I

Illustration: Pioneer Advertising estimates depreciation on the office equipment to be $480 a year, or $40 per month.Accumulated depreciation40Depreciation expense40Oct. 31Illustration 3-7Adjusting Entries for Prepaid Expenses**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Depreciation (Statement Presentation)Accumulated Depreciation is a contra asset account.Appears just after the account it offsets (Equipment) on the balance sheet. Illustration 3-8Adjusting Entries for Prepaid Expenses**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

SummaryIllustration 3-9Adjusting Entries for Prepaid Expenses**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Adjusting Entries for Unearned RevenuesReceipt of cash that is recorded as a liability because the revenue has not been earned.rentairline ticketsschool tuitionCash ReceiptRevenue RecordedBEFOREmagazine subscriptionscustomer depositsUnearned revenues often occur in regard to:**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Unearned RevenuesCompany makes an adjusting entry to record the revenue that has been earned and to show the liability that remains.The adjusting entry for unearned revenues results in a decrease (a debit) to a liability account and an increase (a credit) to a revenue account.Adjusting Entries for Unearned Revenues**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Adjusting entries for unearned revenuesDecrease (a debit) to a liability account and Increase (a credit) to a revenue account.Adjusting Entries for Unearned RevenuesIllustration 3-10**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Adjusting Entries for Unearned RevenuesIllustration: Pioneer Advertising Agency received $1,200 on October 2 from R. Knox for advertising services expected to be completed by December 31. Unearned Service Revenue shows a balance of $1,200 in the October 31 trial balance. Analysis reveals that the company earned $400 of those fees in October.Service revenue400Unearned service revenue400Oct. 31Illustration 3-11**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

SummaryAdjusting Entries for Unearned RevenuesIllustration 3-12**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Made to record: Revenues earned and ORExpenses incurred in the current accounting period that have not been recognized through daily entries.Adjusting Entries for AccrualsSO 6 Prepare adjusting entries for accruals.**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Adjusting Entries for Accrued RevenuesRevenues earned but not yet received in cash or recorded.rentinterestservices performedBEFOREAccrued revenues often occur in regard to:Cash ReceiptRevenue RecordedAdjusting entry results in:SO 6 Prepare adjusting entries for accruals.**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Accrued RevenuesAn adjusting entry serves two purposes: (1) It shows the receivable that exists, and (2) It records the revenues earned.Adjusting Entries for Accrued RevenuesSO 6 Prepare adjusting entries for accruals.**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Adjusting entries for accrued revenuesIncreases (debits) an asset account and Increases (credits) a revenue account.SO 6 Prepare adjusting entries for accruals.Adjusting Entries for Accrued RevenuesIllustration 3-13**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Illustration: In October Pioneer Advertising Agency earned $200 for advertising services that had not been recorded.Service Revenue200Accounts Receivable200Oct. 31Illustration 3-14SO 6 Prepare adjusting entries for accruals.Adjusting Entries for Accrued Revenues**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

SummaryIllustration 3-15Adjusting Entries for Accrued RevenuesSO 6 Prepare adjusting entries for accruals.**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Adjusting Entries for Accrued ExpensesExpenses incurred but not yet paid in cash or recorded.rentinterestBEFOREAccrued expenses often occur in regard to:Cash PaymentExpense RecordedtaxessalariesAdjusting entry results in:SO 6 Prepare adjusting entries for accruals.**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Accrued ExpensesAn adjusting entry serves two purposes: (1) It records the obligations, and (2) It recognizes the expenses. Adjusting Entries for Accrued ExpensesSO 6 Prepare adjusting entries for accruals.**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Adjusting entries for accrued expensesIncreases (debits) an expense account and Increases (credits) a liability account.SO 6 Prepare adjusting entries for accruals.Adjusting Entries for Accrued ExpensesIllustration 3-16**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

SO 6 Prepare adjusting entries for accruals.Illustration: Pioneer Advertising Agency signed a three-month note payable in the amount of $5,000 on October 1. The note requires Pioneer to pay interest at an annual rate of 12%.Interest payable50Interest expense50Oct. 31Illustration 3-18Illustration 3-17Adjusting Entries for Accrued Expenses**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

SO 6 Prepare adjusting entries for accruals.Illustration: Pioneer Advertising Agency last paid salaries on October 26; the next payment of salaries will not occur until November 9. The employees receive total salaries of $2,000 for a five-day work week, or $400 per day. Thus, accrued salaries at October 31 are $1,200 ($400 x 3 days).Salaries payable1,200Salaries expense1,200Oct. 31Illustration 3-20Adjusting Entries for Accrued Expenses**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

SummaryIllustration 3-21SO 6 Prepare adjusting entries for accruals.Adjusting Entries for Accrued Expenses**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

After all adjusting entries are journalized and posted the company prepares another trial balance from the ledger accounts (Adjusted Trial Balance).Its purpose is to prove the equality of debit balances and credit balances in the ledger. The Adjusted Trial BalanceSO 7 Describe the nature and purpose of an adjusted trial balance.**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

The Adjusted Trial Balance**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Which of the following statements is incorrect concerning the adjusted trial balance?An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made.The adjusted trial balance provides the primary basis for the preparation of financial statements. The adjusted trial balance lists the account balances segregated by assets and liabilities. The adjusted trial balance is prepared after the adjusting entries have been journalized and posted.Review QuestionSO 7 Describe the nature and purpose of an adjusted trial balance.The Adjusted Trial Balance**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Financial Statements are prepared directly from the Adjusted Trial Balance. Balance SheetIncome StatementOwners Equity Statement Preparing Financial StatementsSO 7 Describe the nature and purpose of an adjusted trial balance.**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Preparing Financial StatementsIllustration 3-25 Preparation of the incomestatement and ownersequity statement from theadjusted trial balance**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Preparing Financial StatementsIllustration 3-26**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Some companies use an alternative treatment for prepaid expenses and unearned revenues.When a company prepays an expense, it debits that amount to an expense account.When a company receives payment for future services, it credits the amount to a revenue account.Alternative Treatment of Prepaid Expenses and Unearned RevenuesSO 8 Prepare adjusting entries for the alternative treatment of deferrals.**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Illustration: Pioneer Advertising purchased supplies on October 5 for $2,500 and debited AdvertisingSupplies Expense for the full amount. What if an inventoryof $1,000 of advertising supplies remains on October 31?Alternative Treatment for Prepaid ExpensesSO 8 Prepare adjusting entries for the alternative treatment of deferrals.Advertising supplies expense1,000Advertising supplies1,000Oct. 31Illustration 3A-1**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Alternative Treatment for Prepaid ExpensesSO 8 Prepare adjusting entries for the alternative treatment of deferrals.Adjustment approachesa comparisonIllustration 3A-2**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

Illustration: Assume that Pioneer Advertising received $1,200 for future services on October 2 and credited the entire amount to Service Revenue. If at the statement date Pioneer has not performed $800 of the services, it would make an adjusting entry.Alternative Treatment for Unearned RevenuesSO 8 Prepare adjusting entries for the alternative treatment of deferrals.Unearned service revenue800Service revenue800Oct. 31Illustration 3A-4**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

SO 8 Prepare adjusting entries for the alternative treatment of deferrals.Adjustment approachesa comparisonIllustration 3A-5Alternative Treatment for Unearned Revenues**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

SO 8 Prepare adjusting entries for the alternative treatment of deferrals.Summary of Additional Adjustment RelationshipsIllustration 3A-7**Lilik Purwanti, Pengantar Akuntansi I

Lilik Purwanti, Pengantar Akuntansi I

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Lilik Purwanti, Pengantar Akuntansi I

1. On the topic, Challenges Facing Financial Accounting, what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements?Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases).Forward-looking Information Soft Assets (a companys know-how, market dominance, marketing setup, well-trained employees, and brand image).Timeliness (no real time financial information)

Service Cost - Actuaries compute service cost as the present value of the new benefits earned by employees during the year. Future salary levels considered in calculation.Interest on Liability - Interest accrues each year on the PBO just as it does on any discounted debt.Actual Return on Plan Assets - Increase in pension funds from interest, dividends, and realized and unrealized changes in the fair market value of the plan assets.Amortization of Unrecognized Prior Service Cost - The cost of providing retroactive benefits is allocated to pension expense in the future, specifically to the remaining service-years of the affected employees.Gain or Loss - Volatility in pension expense can be caused by sudden and large changes in the market value of plan assets and by changes in the projected benefit obligation. Two items comprise the gain or loss: difference between the actual return and the expected return on plan assets and, amortization of the unrecognized net gain or loss from previous periods