2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis,

slides prepared by Kaye Watson 1

This is the prescribed textbook for your course.

Available NOW at your campus bookstore!

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis,

slides prepared by Kaye Watson 2

1Chapter

BALANCE DAY ADJUSTMENTSBALANCE DAY ADJUSTMENTS

LEARNING OUTCOME:TO REVISE GENERAL JOURNAL ENTRIES FOR

BALANCE DAY ADJUSTMENTS

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis,

slides prepared by Kaye Watson 3

KEY TERMS

accrued expenses accrued revenue balance date balance day

adjustments balance day entries prepaid expenses revenue in advance

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis,

slides prepared by Kaye Watson 4

THE ACCRUAL CONCEPT

Assumes that transactions are recorded in the period when revenue is earned and expenses are incurred

NOT When the cash is received and

expenses are paid

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis,

slides prepared by Kaye Watson 5

TYPES OF BALANCE DAY ADJUSTMENTS

1. Accrued revenue

2. Accrued expenses

3. Revenue in advance

4. Prepaid expenses

Revenue earned but not yet received

Expenses incurred but not yet paid

Revenue received but not yet earned

Expenses paid but not yet incurred

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis,

slides prepared by Kaye Watson 6

TYPES OF BALANCE DAY ACCOUNTS

1. Asset account (DEBIT)

2. Liability account (CREDIT)

Accrued revenue Prepaid expenses

Revenue in advance

Accrued expenses

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis,

slides prepared by Kaye Watson 7

EXAMPLE Accrued revenue

Commission is due to be paid in July on a property sold in June

General Journal Date Details Debit

($) Credit ($)

30 June Accrued revenue 4000 Commission revenue 4000 Commission accrued

but not yet received

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis,

slides prepared by Kaye Watson 8

EXAMPLE

Prepaid expensesInsurance expense account includes an amount

of $3000 which relates to July, August and September in the next financial year

General Journal Date Details Debit

($) Credit ($)

30 June Prepaid expenses 3000 Insurance expense 3000 Prepaid insurance

expense

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis,

slides prepared by Kaye Watson 9

EXAMPLE Accrued expenses

Wages to be paid in July include $1000 for employees who worked on 29 June.

General Journal Date Details Debit

($) Credit ($)

30 June Wage expense 1000 Accrued wages 1000 Wages accrued

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis,

slides prepared by Kaye Watson 10

EXAMPLE Revenue received in advance

Fees received in June included a deposit of $2000 for a project starting in August

General Journal Date Details Debit

($) Credit ($)

30 June Fee revenue 2000 Revenue received in

advance 2000

Deposit on project

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis,

slides prepared by Kaye Watson 11

BALANCE DAY ADJUSTMENTS AFFECT STATEMENT OF FINANCIAL POSITION

Prepaid expense

DEBIT ASSET

Accrued revenue

DEBIT ASSETSTATEMENT

OF FINANCIAL

Accrued expense CREDIT LIABILITY

POSITION AT JUNE 30

Revenue in advance

CREDIT LIABILITY

2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Applications for Financial Accounting by David Willis,

slides prepared by Kaye Watson 12

OTHER BALANCE DAY ENTRIES Closing inventories

Bad and doubtful debts

Depreciation

Provision for annual leave

Provision for long service leave