CHAPTER 7 ADJUSTING and CORRECTING to THE ACCOUNTS

1. CHAPTER 7 ADJUSTING and CORRECTING to THE ACCOUNTS

2. Asumsi Periode Waktu Umur Ekonomis dari Suatu Bisnis dapat Dibagi dalam Beberapa Periode Prinsip Pengakuan Pendapatan Konsep Penandingan Pendapatan yang Diakui adalah Pendapatan yang diperoleh dalam Periode Akuntansi Beban Diakui Sejumlah Pengeluaran yang Memberikan Kontribusi dalam Perolehan Pendapatan Pengakuan Pendapatan dan Beban Reognition Harus Sesuai dengan Prinsip-prinsip yang Diterima Umum Illustration 1 : Relationship Among Accounting Period Asumption Income

3. The Importance of Adjusting • Accounting Period is basic concept of accounting representing that to prepare financial statements, accountant must be assuming that the economic life of the business can be divided into time periods • Using the accounting period concept, accountants must determine in which period the revenues and expenses of the business should be reported • To determine the appropriate period, accountants will use either (1) the cash basis of accounting or (2) the accrual basis of accounting

4. Cash Basis • Under cash basis, revenues and expenses are reported in the income statement in the period in which cash is received or paid

5. The Accrual Basis • Under the accrual basis, revenues are reported in the income statement in the period in which they are earned • Revenue is reported when the services are provided to customers. Cash may or may not be received from customers during this period • The concept that supports this reporting of revenues is called the revenue recognition concept • Expenses are reported in the same period as the revenues to which the relate

6. Generally accepted accounting principles require the use of the accrual basis • Small service businesses may use the cash basis because they have few receivables and payables • For small service businesses, cash basis will yield financial statements similar to those prepared under the accrual basis • For most large businesses, the cash basis will not provide accurate financial statements for user needs • The accrual basis and its related matching concept require an analysis and updating of some accounts when financial statements are prepared

7. Nature of The Adjusting Process • At the end of an accounting the period, many of the balances of accounts in the ledger can be reported in the financial statement • To show the actual financial condition of the firm, It’s required updating to some accounts • The journal entries that bring the accounts up to date at the end of the accounting period are called adjusting entries • All adjusting entries affect at least one income statement account and one balance sheet account

8. An adjusting entry will always involve a revenue or an expense account and asset or liability account • There are 4 (four) basic items require adjusting entry: a. The first two items are deferrals. They are consisted of: (1) deferred expenses or prepaid expenses, and (2) deferred revenues or unearned revenues b. The second two items are accruals. They are consisted of: (1) accrued expenses or accrued liabilities, and (2) accrued revenues or accrued assets • The following pictures is the illustrtion of deferrals and accruals (Illustration 2)

9. Current Accounting Period Future Accounting Period January 1 1999 December 31 1999 January 1 2000 December 31 2000 Deferrals Cash received or paid Revenue earned or expense incurred Accruals Cash received or paid Revenue earned or expense incurred Adjusting entries to record current period revenue or expense

10. Recording Adjusting Entries • The following data is used to prepare adjusting entries in Cipta Jasa Karya, Co. • Trial Balance • The relevant information • 1) Sallaries accrued but not paid at August, 31 Rp. 240.000 • 2) Accrued fees earned but not recorded at August,31 Rp. 550.000 • 3) Insurance premiums expired during the period Rp. 600.000

11. 4) Building rent expired during period Rp. 3.200.000 5) Unearned fees at, August, 31 Rp. 7.400.000 6) Depreciation of equipment during period, Rp. 1.400.000 7) Supplies on hand 31, Agust Rp. 2.700.000

12. Cipta Jasa Karya, Co Trial Balance Agust, 31, 2008

14. Adjusting Entries Prepaid Expense Assets Expense Prepaid Expenses LIabilities Revenues Unadjusted Balance Credit to Assets Account in Adjusted Entries Debit to expenses Account in Adjusting Entries Debit to Liabilities Account in Adjusting Entries Unadjusted Balance Credit to Revenues Account in Adjusting Entries Ilustration 3: Adjusting Entries of Prepaid Expense

16. Unearned Revenues Oct,31 Revenues and Receivables are Recorded to Service Given Nov. Cash Receipts Reduce Receivables

17. Oct 50 Feb 50 June 50 Mar 50 Nov 50 July 50 Apr 50 August 50 Dec 50 Sept 50 Jan 50 Mey 50 One Year 600 Insurance policw Insurance Okt. 4 Oct, 31 Expired Insurance is as Insurance Expense

19. Accrued Revenue Oct, 2 Cash Advanced is Recorded as LIability Revenue Earned for Services Rendered

20. Depreciation Oct. 1 June 40 Oct 40 Feb 40 Nov 40 Mar 40 July 40 August 40 Apr 40 Dec 40 Jan 40 May 40 Sept 40 Office Equipment is Recorded as Asset Office Equipment Depreciation=480/year Oct.31 Recognition of Depreciation is as Depreciation Expense Office Equipment

21. Supplies Oct. 5 Purchased Supplies is Recorded as Assets Oct. 31 Using of Supplies is Recorded as Supplies Expenses

23. Ilustration 4: Adjusted Trial Balance Cipta Jasa Karya, Co Adjusted Trial Balance August, 31, 2008