Adjusting the records at period end
Use period-end evidence to determine the required balances, record adjusting entries, and trace the effects of omitted entries.
Accrual-basis US GAAP requires activity to be reported in the period in which it occurs, even when cash moves in another period. Students use the reporting date and supporting evidence to classify, compute, and record adjustments before preparing the statements.
- Date
- Thu 9/380 minutes
- Reading
- Chapter 2: Adjusting the records at period end (read by next class) Optional Kieso equivalent: Chapter 2, section 2.3, pages 2-23 through 2-36
- Engagement points
- Scored5 points for answering at least 75%
Slides and downloads
View the slides online, or download the PDF for offline reading or printing.
Watch this meeting
Lecture playlist Subscribe on YouTube
The slides of this meeting's deck, each held for as long as the narration over it runs. Read by a speech synthesizer; every line was transcribed back and checked against its script before it was kept.
Upcoming deadline
Introduction assignment due Fri 9/4, 11:59 PM
What to do before class
- Complete the iClicker registration, rust check, and syllabus and technology check by Wednesday, September 2 at 11:59 PM.
- Bring the phone or other device you use for iClicker. This meeting includes scored questions.
What we will do in class
- Explain why equal trial-balance totals do not show that every balance is current.
- Classify the four timing patterns from cash timing and the company's role in the economic activity.
- Compute and record cash-first and activity-first adjustments.
- Rebuild a missing adjustment and trace its effects through the statements.
Used or remaining?
A prepayment question can ask for the amount used or the amount remaining. Both numbers can appear in your work, so check which one the question asks for.
Assigned reading and deadlines
Solutions to the in-class problems post to D2L after the meeting.
- Read Chapter 2: Adjusting the records at period end after this meeting and before the next class.
- Submit your private introduction slide by Friday, September 4 at 11:59 PM.
Practice Chapter 2 by topic
Six questions on accruals, deferrals, and depreciation, with answer explanations on one page. These are optional, not assigned preparation.
Lessons, examples, and references
Complete the assigned reading first. Open a link below when you need a definition, another explanation, or more practice.
Lessons
- Why an equal trial balance still needs adjustments
Use period end facts to move from an equal unadjusted trial balance to supported accrued revenue and accrued expense balances.
- Cash first: prepayments and customer advances
Follow a prepaid asset and an unearned revenue liability from the cash transaction through the year end adjustment.
- Straight-line depreciation refresher
Review a basic straight line calculation, record the period end adjustment, and distinguish depreciation expense from accumulated depreciation.
Worked examples
- A prepayment and customer advance through month-end
Record two cash first transactions, adjust for one month of consumption and one completed milestone, and reconcile the remaining asset and liability.
- Two adjustments from an equal unadjusted trial balance
Record earned but unbilled service and incurred but unpaid wages, then reconcile unadjusted and adjusted trial balances.
- Record depreciation without erasing equipment cost
Post one year of depreciation to expense and a credit normal contra asset, then reconcile the adjusted trial balance and carrying amount.
Concepts used
Mistakes to avoid
- Mistaken idea: An adjusting entry requires cash to move
Correction: An adjusting entry can record revenue earned or an expense incurred before cash moves. Record the related receivable or payable at period end, then record the later cash settlement separately.
- Mistaken idea: Every cash receipt is revenue
Correction: Record revenue when the company earns it under the applicable guidance, not merely when cash arrives. Collecting an existing receivable does not create revenue again; borrowing and owner investments are not revenue either.
Figure from this lecture
Each figure includes a full text description.
- Accrual recognition and cash settlement occupy different clocks
Compare accrued revenue and accrued expense with the later cash transactions that settle them.