This document provides an overview of adjusting entries and preparing an adjusted trial balance. It discusses the time period and accrual assumptions, the need for adjusting entries to follow revenue recognition and matching principles, and the major types of adjusting entries for prepayments and accruals. Examples are provided for preparing adjusting entries for various accounts. The adjusted trial balance is compared to the unadjusted trial balance, and it explains how the financial statements are prepared directly from the adjusted trial balance accounts.

1. Chapter 3 Adjusting the Accounts Prepared by Mohd.Mohsin Assistant Professor of Finance IIUC 01716879886 Mohd.Mohsin,Assistant Professor,IIUC,mohsinmdpur@yahoo.com.017167879886

7. GAAP RELATIONSHIPS IN REVENUE AND EXPENSE RECOGNITION Revenue-Recognition Principle Revenue recognized in the accounting period in which it is earned Mohd.Mohsin,Assistant Professor,IIUC,mohsinmdpur@yahoo.com.017167879886 Time-Period Assumption Economic life of business can be divided into artificial time periods Matching Principle Expenses matched with revenues in the same period when efforts are expended to generate revenues

14. ADJUSTING ENTRIES FOR PREPAYMENTS Mohd.Mohsin,Assistant Professor,IIUC,mohsinmdpur@yahoo.com.017167879886 Adjusting Entries Asset Unadjusted Balance Credit Adjusting Entry (-) Expense Debit Adjusting Entry (+) Prepaid Expenses Liability Unadjusted Balance Debit Adjusting Entry (-) Revenue Credit Adjusting Entry (+) Unearned Revenues

27. ADJUSTING ENTRIES FOR ACCRUALS Mohd.Mohsin,Assistant Professor,IIUC,mohsinmdpur@yahoo.com.017167879886 Adjusting Entries Asset Debit Adjusting Entry (+) Accrued Revenues Revenue Credit Adjusting Entry (+) Accrued Expenses Expense Debit Adjusting Entry (+) Liability Credit Adjusting Entry (+)

37. Mohd.Mohsin,Assistant Professor,IIUC,mohsinmdpur@yahoo.com.017167879886 PIONEER ADVERTISING AGENCY Adjusted Trial Balance October 31, 2005 Before After Adjustment Adjustment Debit Credit Debit Credit Cash $ 15,200 $ 15,200 Accounts Receivable 200 Advertising Supplies 2,500 1,000 Prepaid Insurance 600 550 Office Equipment 5,000 5,000 Accumulated Depreciation - Office Equipment $ 40 Notes Payable $ 5,000 5,000 Accounts Payable 2,500 2,500 Interest Payable 50 Unearned Revenue 1,200 800 Salaries Payable 1,200 C. R. Byrd, Capital 10,000 10,000 C. R. Byrd, Drawing 500 500 Service Revenue 10,000 10,600 Salaries Expense 4,000 5,200 Advertising Supplies Expense 1,500 Rent Expense 900 900 Insurance Expense 50 Interest Expense 50 Depreciation Expense 40 $ 28,700 $ 28,700 $ 30,190 $ 30,190 TRIAL BALANCE AND ADJUSTED TRIAL BALANCE COMPARED

39. Mohd.Mohsin,Assistant Professor,IIUC,mohsinmdpur@yahoo.com.017167879886 PIONEER ADVERTISING AGENCY Adjusted Trial Balance October 31, 2005 Debit Credit Cash $ 15,200 Accounts Receivable 200 Advertising Supplies 1,000 Prepaid Insurance 550 Office Equipment 5,000 Accumulated Depreciation - Office Equipment $ 40 Notes Payable 5,000 Accounts Payable 2,500 Interest Payable 50 Unearned Revenue 800 Salaries Payable 1,200 C. R. Byrd, Capital 10,000 C. R. Byrd, Drawing 500 Service Revenue 10,600 Salaries Expense 5,200 Advertising Supplies Expense 1,500 Rent Expense 900 Insurance Expense 50 Interest Expense 50 Depreciation Expense 40 $ 30,190 $ 30,190 PREPARATION OF THE INCOME STATEMENT AND THE OWNER’S EQUITY STATEMENT FROM THE ADJUSTED TRIAL BALANCE

41. Mohd.Mohsin,Assistant Professor,IIUC,mohsinmdpur@yahoo.com.017167879886 PIONEER ADVERTISING AGENCY Adjusted Trial Balance October 31, 2005 Debit Credit Cash $ 15,200 Accounts Receivable 200 Advertising Supplies 1,000 Prepaid Insurance 550 Office Equipment 5,000 Accumulated Depreciation – Office Equipment $ 40 Notes Payable 5,000 Accounts Payable 2,500 Interest Payable 50 Unearned Revenue 800 Salaries Payable 1,200 C. R. Byrd, Capital 10,000 C. R. Byrd, Drawing 500 Service Revenue 10,600 Salaries Expense 5,200 Advertising Supplies Expense 1,500 Rent Expense 900 Insurance Expense 50 Interest Expense 50 Depreciation Expense 40 $ 30,190 $ 30,190 PREPARATION OF THE INCOME STATEMENT AND THE OWNER’S EQUITY STATEMENT FROM THE ADJUSTED TRIAL BALANCE

43. Mohd.Mohsin,Assistant Professor,IIUC,mohsinmdpur@yahoo.com.017167879886 PIONEER ADVERTISING AGENCY Adjusted Trial Balance October 31, 2005 Debit Credit Cash $ 15,200 Accounts Receivable 200 Advertising Supplies 1,000 Prepaid Insurance 550 Office Equipment 5,000 Accumulated Depreciation – Office Equipment $ 40 Notes Payable 5,000 Accounts Payable 2,500 Interest Payable 50 Unearned Revenue 800 Salaries Payable 1,200 C. R. Byrd, Capital 10,000 C. R. Byrd, Drawing 500 Service Revenue 10,600 Salaries Expense 5,200 Advertising Supplies Expense 1,500 Rent Expense 900 Insurance Expense 50 Interest Expense 50 Depreciation Expense 40 $ 30,190 $ 30,190 PREPARATION OF THE BALANCE SHEET FROM THE ADJUSTED TRIAL BALANCE

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