{"id":715,"date":"2015-05-11T16:16:22","date_gmt":"2015-05-11T16:16:22","guid":{"rendered":"https:\/\/courses.candelalearning.com\/finacct2x10xmaster\/?post_type=chapter&#038;p=715"},"modified":"2017-08-22T19:34:07","modified_gmt":"2017-08-22T19:34:07","slug":"adjusting-entry-rules","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/clinton-finaccounting\/chapter\/adjusting-entry-rules\/","title":{"raw":"Adjusting for Accrued Items","rendered":"Adjusting for Accrued Items"},"content":{"raw":"<h2>\u00a0ACCRUALS<\/h2>\r\nThis type of adjusting entry will ADD to two accounts. <strong>The amount you will be\u00a0adding was not already on the books<\/strong>. You can have accrued expenses or accrued revenues:\r\n<ul>\r\n \t<li>Accrued Revenues are when a revenue has been earned (we did the work or made a sale) but it has not been recorded in our books.\u00a0 This is common at the end of the year when we are doing work but have not recorded the revenue yet.\u00a0 This would also apply to interest earned on notes receivable even if the interest is not due until the next year.<\/li>\r\n<\/ul>\r\nhttps:\/\/youtu.be\/Fn3oUGTf-wk\r\n<ul>\r\n \t<li>Accrued Expenses are when an expense has been incurred but has not been entered into the books. This is common if employees worked during the last week of the year but won\u2019t be paid until the regular payday which is in the next year. The expense needs to be matched with the revenue of the period. Interest expense is another example since it accrues by the day we need to adjust for the expense for the amount of time the note is outstanding during the accounting period.<\/li>\r\n<\/ul>\r\nhttps:\/\/youtu.be\/ONkJXfvrAkc\r\n\r\nLet's look at some examples.\r\n\r\n&nbsp;\r\n<h3>Example 1 -\u00a0\u00a0Revenue Goes From Accrued Asset to Accrued Revenue<\/h3>\r\nAn <strong>asset \/ revenue<\/strong> adjustment may occur when a company performs a service for a customer but has not yet billed the customer. The accountant records this transaction as an asset in the form of a receivable and as revenue because the company has earned a revenue.\r\n\r\nMicroTrain Company did work for a customer on December 31 for $5,000.\u00a0 The customer has not been billed.\u00a0 We would make the following adjusting entry on December 31:\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td><\/td>\r\n<td>Debit<\/td>\r\n<td>Credit<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Accounts Receivable<\/td>\r\n<td>5,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 \u00a0 Service Revenue<\/td>\r\n<td><\/td>\r\n<td>5,000<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<h3>Example\u00a02 -\u00a0\u00a0Interest Goes From Accrued Asset to Accrued Revenue<\/h3>\r\nFor example, assume MicroTrain Company has some money in a savings account. On\u00a0December 31 the money on deposit has earned one month\u2019s interest of\u00a0 $600, although the company has not received the interest. An entry must show the amount of interest earned by December 31 as well as the amount of the asset, interest receivable (the right to receive this interest). The entry to record the accrual of revenue is:\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td><\/td>\r\n<td>\u00a0Debit<\/td>\r\n<td>Credit<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Interest Receivable<\/td>\r\n<td>\u00a0 600<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 \u00a0 Interest Revenue<\/td>\r\n<td><\/td>\r\n<td>\u00a0 600<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<h3>Example 3- Salaries go From Accrued Liabilities to Accrued Expenses<\/h3>\r\n<strong>Liability\/expense<\/strong> adjustments\u2014involves accrued liabilities.\u00a0<strong>Accrued liabilities <\/strong>are liabilities not yet recorded at the end of an accounting period. They represent obligations to make payments not legally due at the balance sheet date, such as employee salaries. At the end of the accounting period, the company recognizes these obligations by preparing an adjusting entry including both a liability and an expense. For this reason, we also call these obligations <strong>accrued expenses<\/strong>.\r\n\r\nAn accountant records unpaid salaries as a liability and an expense because the company has incurred an expense. \u00a0The recording of the payment of employee salaries usually involves a debit to an expense account and a credit to Cash. Unless a company pays salaries on the last day of the accounting period for a pay period ending on that date, it must make an adjusting entry to record any salaries incurred but not yet paid.\r\n\r\nMicroTrain Company paid\u00a0employees on\u00a0Friday, December 27.\u00a0 The next payday will be in January of the next year.\u00a0 We need to do an adjusting entry to record the salary earned by employees from December 28 - December 31 of this year.\u00a0 December 28 and 29 are weekend days and employees do not work those days.\u00a0 We need to account for 2 days, December 30 and 31.\r\n\r\nIf salaries are\u00a0$900 per week. For a five-day workweek ($900 \/ 5 days), daily salaries are\u00a0$180. MicroTrain makes the following adjusting entry on December 31 to accrue salaries for\u00a0two days ($180 per day x 2 days):\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>Dec.<\/td>\r\n<td>31<\/td>\r\n<td>Salaries Expense<\/td>\r\n<td>360<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td>Salaries Payable<\/td>\r\n<td><\/td>\r\n<td>360<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td>To accrue two day's salaries that were earned but not paid.<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>","rendered":"<h2>\u00a0ACCRUALS<\/h2>\n<p>This type of adjusting entry will ADD to two accounts. <strong>The amount you will be\u00a0adding was not already on the books<\/strong>. You can have accrued expenses or accrued revenues:<\/p>\n<ul>\n<li>Accrued Revenues are when a revenue has been earned (we did the work or made a sale) but it has not been recorded in our books.\u00a0 This is common at the end of the year when we are doing work but have not recorded the revenue yet.\u00a0 This would also apply to interest earned on notes receivable even if the interest is not due until the next year.<\/li>\n<\/ul>\n<p>https:\/\/youtu.be\/Fn3oUGTf-wk<\/p>\n<ul>\n<li>Accrued Expenses are when an expense has been incurred but has not been entered into the books. This is common if employees worked during the last week of the year but won\u2019t be paid until the regular payday which is in the next year. The expense needs to be matched with the revenue of the period. Interest expense is another example since it accrues by the day we need to adjust for the expense for the amount of time the note is outstanding during the accounting period.<\/li>\n<\/ul>\n<p><iframe loading=\"lazy\" id=\"oembed-1\" title=\"Adjusting Entries for Accrued Expenses (Financial Accounting Tutorial #19)\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/ONkJXfvrAkc?feature=oembed&#38;rel=0\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>Let&#8217;s look at some examples.<\/p>\n<p>&nbsp;<\/p>\n<h3>Example 1 &#8211;\u00a0\u00a0Revenue Goes From Accrued Asset to Accrued Revenue<\/h3>\n<p>An <strong>asset \/ revenue<\/strong> adjustment may occur when a company performs a service for a customer but has not yet billed the customer. The accountant records this transaction as an asset in the form of a receivable and as revenue because the company has earned a revenue.<\/p>\n<p>MicroTrain Company did work for a customer on December 31 for $5,000.\u00a0 The customer has not been billed.\u00a0 We would make the following adjusting entry on December 31:<\/p>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<td>Debit<\/td>\n<td>Credit<\/td>\n<\/tr>\n<tr>\n<td>Accounts Receivable<\/td>\n<td>5,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0 \u00a0 Service Revenue<\/td>\n<td><\/td>\n<td>5,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h3>Example\u00a02 &#8211;\u00a0\u00a0Interest Goes From Accrued Asset to Accrued Revenue<\/h3>\n<p>For example, assume MicroTrain Company has some money in a savings account. On\u00a0December 31 the money on deposit has earned one month\u2019s interest of\u00a0 $600, although the company has not received the interest. An entry must show the amount of interest earned by December 31 as well as the amount of the asset, interest receivable (the right to receive this interest). The entry to record the accrual of revenue is:<\/p>\n<table>\n<tbody>\n<tr>\n<td><\/td>\n<td>\u00a0Debit<\/td>\n<td>Credit<\/td>\n<\/tr>\n<tr>\n<td>Interest Receivable<\/td>\n<td>\u00a0 600<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0 \u00a0 Interest Revenue<\/td>\n<td><\/td>\n<td>\u00a0 600<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h3>Example 3- Salaries go From Accrued Liabilities to Accrued Expenses<\/h3>\n<p><strong>Liability\/expense<\/strong> adjustments\u2014involves accrued liabilities.\u00a0<strong>Accrued liabilities <\/strong>are liabilities not yet recorded at the end of an accounting period. They represent obligations to make payments not legally due at the balance sheet date, such as employee salaries. At the end of the accounting period, the company recognizes these obligations by preparing an adjusting entry including both a liability and an expense. For this reason, we also call these obligations <strong>accrued expenses<\/strong>.<\/p>\n<p>An accountant records unpaid salaries as a liability and an expense because the company has incurred an expense. \u00a0The recording of the payment of employee salaries usually involves a debit to an expense account and a credit to Cash. Unless a company pays salaries on the last day of the accounting period for a pay period ending on that date, it must make an adjusting entry to record any salaries incurred but not yet paid.<\/p>\n<p>MicroTrain Company paid\u00a0employees on\u00a0Friday, December 27.\u00a0 The next payday will be in January of the next year.\u00a0 We need to do an adjusting entry to record the salary earned by employees from December 28 &#8211; December 31 of this year.\u00a0 December 28 and 29 are weekend days and employees do not work those days.\u00a0 We need to account for 2 days, December 30 and 31.<\/p>\n<p>If salaries are\u00a0$900 per week. For a five-day workweek ($900 \/ 5 days), daily salaries are\u00a0$180. MicroTrain makes the following adjusting entry on December 31 to accrue salaries for\u00a0two days ($180 per day x 2 days):<\/p>\n<table>\n<tbody>\n<tr>\n<td>Dec.<\/td>\n<td>31<\/td>\n<td>Salaries Expense<\/td>\n<td>360<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td>Salaries Payable<\/td>\n<td><\/td>\n<td>360<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td>To accrue two day&#8217;s salaries that were earned but not paid.<\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-715\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Accounting Principles: A Business Perspective. <strong>Authored by<\/strong>: James Don Edwards, University of Georgia &amp; Roger H. Hermanson, Georgia State University. <strong>Provided by<\/strong>: Endeavour International Corporation. <strong>Project<\/strong>: The Global Text Project   . <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">All rights reserved content<\/div><ul class=\"citation-list\"><li>Adjusting Entries for Accrued Revenues. <strong>Authored by<\/strong>: Note Pirate. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/youtu.be\/Fn3oUGTf-wk\">https:\/\/youtu.be\/Fn3oUGTf-wk<\/a>. <strong>License<\/strong>: <em>All Rights Reserved<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><li>Adjusting Entries for Accrued Expenses. <strong>Authored by<\/strong>: Note Pirate. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/youtu.be\/ONkJXfvrAkc\">https:\/\/youtu.be\/ONkJXfvrAkc<\/a>. <strong>License<\/strong>: <em>All Rights Reserved<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":276,"menu_order":10,"template":"","meta":{"_candela_citation":"[{\"type\":\"copyrighted_video\",\"description\":\"Adjusting Entries for Accrued Revenues\",\"author\":\"Note Pirate\",\"organization\":\"\",\"url\":\"https:\/\/youtu.be\/Fn3oUGTf-wk\",\"project\":\"\",\"license\":\"arr\",\"license_terms\":\"Standard YouTube License\"},{\"type\":\"copyrighted_video\",\"description\":\"Adjusting Entries for Accrued Expenses\",\"author\":\"Note Pirate\",\"organization\":\"\",\"url\":\"https:\/\/youtu.be\/ONkJXfvrAkc\",\"project\":\"\",\"license\":\"arr\",\"license_terms\":\"Standard YouTube License\"},{\"type\":\"cc\",\"description\":\"Accounting Principles: A Business Perspective\",\"author\":\"James Don Edwards, University of Georgia & Roger H. Hermanson, Georgia State University\",\"organization\":\"Endeavour International Corporation\",\"url\":\"\",\"project\":\"The Global Text Project   \",\"license\":\"cc-by\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-715","chapter","type-chapter","status-publish","hentry"],"part":67,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/clinton-finaccounting\/wp-json\/pressbooks\/v2\/chapters\/715","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/clinton-finaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/clinton-finaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/clinton-finaccounting\/wp-json\/wp\/v2\/users\/276"}],"version-history":[{"count":11,"href":"https:\/\/courses.lumenlearning.com\/clinton-finaccounting\/wp-json\/pressbooks\/v2\/chapters\/715\/revisions"}],"predecessor-version":[{"id":2282,"href":"https:\/\/courses.lumenlearning.com\/clinton-finaccounting\/wp-json\/pressbooks\/v2\/chapters\/715\/revisions\/2282"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/clinton-finaccounting\/wp-json\/pressbooks\/v2\/parts\/67"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/clinton-finaccounting\/wp-json\/pressbooks\/v2\/chapters\/715\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/clinton-finaccounting\/wp-json\/wp\/v2\/media?parent=715"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/clinton-finaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=715"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/clinton-finaccounting\/wp-json\/wp\/v2\/contributor?post=715"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/clinton-finaccounting\/wp-json\/wp\/v2\/license?post=715"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}