Grade 11 Accounting
Textbook: Accounting 1 (7th edition) By: George Syme, Tim Ireland and Colin Dodds.
Accrual: to grow or accumulate over time
Time Period Concept: Assumes accounting will take place in fiscal periods
Adjusting Entry: A journal entry that assigns an amount of revenue or expense to the appropriate accounting period, bringing the balance sheet to it’s true value.
Adjusting entries help to ensure
In the Income Statement
Revenue Recognition Principle: Record revenue as soon as it is earned.
Matching Principle: Matching the expenses to the revenue it helps earn.
In the Balance Sheet
Cost Principle: Assets are recorded at the historical cost (record the original cost, even if the value increases).
Principle of Conservatism: Assets cannot be overstated or understated, it is always better to err on the side of caution
Every adjusting entry will always affect a balance sheet and an income statement account.
Accrual Adjusting Entries
Prepayment Adjusting Entries
Taking Inventory: At the end of the fiscal period, supplies that are left over by the business are counted and valued
Account balance-Inventory count = Amount used
Adjusting Entry (Dec 31, 2021)
Supplies Expense $12,000
To adjust for the inventory count of $3,000
(Months not used/ Months paid) x Monthly rate = Ending balance in prepaid insurance
(8/12) x $1,800 =1,200 ending balance in prepaid insurance
Beginning balance-Ending balance = Usage
(Months used/ Months paid) x Monthly Rate = Usage
(4/12) x $1,800 =$600
Adjusting Entry (December 31, 2021)
Insurance Expense $600
Prepaid Insurance $600
To adjust for the four months of expired insurance
Adjusting Entry (December 31, 2019)
Telephone Expense $212
Utilities Expense $315
Accounts Payable $527
To record the 2019 invoices that arrived in 2020
Unearned Revenue: Revenue for which the cash has been received, but the good/service has not yet been provided (pending good/service) (Unearned revenue is a liability)
Journal Entry (December 23, 2020)
To record a cheque deposited for service to be done at a later date, revenue recognized
Adjusting Entry (December 30, 2020)
Unearned Revenue $5,000
To adjust for the cash advance payment received
8 columns on the worksheet:
When writing the adjustments, write them in the adjustment column as follows:
Eg; Insurance Expense $2494 (in the Adjustment DR column)
Prepaid Insurance $2494 (in the Adjustment CR column)
To complete the worksheet:
Complete the balance sheet and Income Statement column
Balance Sheet: Assets, Liabilities, Capital, Drawings
Income Statement: Revenue and Expenses
A completed worksheet:
Real Accounts (Permanent Account): Accounts that have balances that continue into the next fiscal period
Nominal accounts (Temporary Account): Accounts that have balances that do not continue into the next fiscal period
Income Summary Account:
Closing the Accounts: means to cause it to have no balance.
The nominal accounts are closed at the end of the fiscal period.
Transfer the balances of the revenue accounts to the new Income Summary Account
Dec 31 Revenue
Transfer the balances of the expense accounts to the new Income Summary Account
Dec 31 Income Summary
Transfer the balances of the Income Summary to the Capital Account
Dec 31 Income Summary
Dec 31 Capital
Transfer the balances of the Drawings account to the capital account
Dec 31 Capital
A trial balance is taken off to ensure that the ledger is still in balance
A post closing trial balance is taken as soon as the closing entries have been posted
Depreciation: Refers to an allowance made for the decrease in the value of an asset over time. Also referred to as amortization of an asset.
Amortization: Means to transfer value.
DR Amortization Expense
CR Accumulated Amortization
Accumulated Amortization: the total amount of amortization expense over the life of an asset.
HOW TO CALCULATE AMOUNT OF DEPRECIATION
Cost: amount paid for the assets
EUL: Estimated useful life (how long the asset will last)
RV/SV: Residual value/salvage value (what the asset will be worth at the end of its useful life)
Net Book Value: Cost-Accumulated Amortization
Formula: (Cost-RV/SV) / EUL = Amortization per year
+For a shorter year, the amortization needs to be adjusted
Accumulated Depreciation Account: known as a valuation or contra account
Adjusting Entry for Depreciation
Depreciation Expense (seen on income statement)
Accumulated Depreciation (deducted from the fixed asset on the balance sheet)
Formula: NBV x Rate = Amortization/Year
Rate: Predetermined by CRA as shown below