Example: Deferral Adjustments Financial Accounting CPA Exam FAR

which of the following is an example of a deferral (or prepaid) adjusting entry? This is a topic that many people are looking for. star-trek-voyager.net is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, star-trek-voyager.net would like to introduce to you Example: Deferral Adjustments Financial Accounting CPA Exam FAR . Following along are instructions in the video below:

“And welcome to the session this is professor for hat in this session. We re re gonna work an example about adjusting entries that deals with the furrows now bear mind. I did already explain the furrows and details i looked at prepaid expenses. I looked at unearned revenues.

Which is two type of the furrow so when i m doing this exercise. I will not be doing detailed explanation. But if you need detailed explanation go back to those recordings and chapter three playlists and you ll be able to see them so let s see what we have what we are giving here this is the lecture of hammond inc on march 31st. 2019.

Included select selected accounts before adjusting entry so..

This is a trial balance and this is a partial trial balance. It s not a complete one just given you the accounts that we need to deal with so we have prepaid unadjusted thirty six hundred supplies twenty eight hundred equipment of twenty five thousand accumulated accumulated depreciation already we have five thousand and unearned revenue. We have ninety two hundred then we are giving four different adjustments. The first one is insurance expired at a one hundred rate per month supplies on hand eight hundred the equipment depreciate at two hundred per month during march services were performed for one half of the unearned revenue prepare the adjusting entry.

So we re gonna go through each one separately and analyze it separately starting with the insurance. So it says insurance expires at 100 per month. What does that mean it means we have an account called prepaid. I m just gonna abbreviate p p.

And we have thirty six hundred in there and we are we are told that every month that went by this account should go down by one hundred..

What do i need to do i need to credit this account sorry it needs to go down by one hundred. So i need to credit this account one hundred and what do i do when i reduce the asset i debit its related expense so i m gonna debit insurance expense for one hundred insurance expense those up there for i debit insurance expense and i credit prepaid insurance so now prepaid insurance is thirty five hundred so this is the first adjustment again this is a form of prepaid supplies on hand is 800. So let s examine the supplies account the supplies account right now supplies is an asset. We are told we have 2800.

But when we counted the supplies we only have 800 so simply put the ending balance should be 800 the ending balance should be 800. So what do i need to do i need to adjust my supplies account. What do i need to do i need to reduce my balance by 2000. So i credit supplies by 2000 to come up to my ending balance and when i credit my asset.

I have to debit a related expense and the related expense supplies expense so i debit supplies expense by 2000 increased supplies expense by 2000 therefore..

I never supplies expense supplies expense goes up. And i credited supplies. Which is an asset supplies goes their own this is a form of a prepaid adjustment equipment depreciate at 200 per month depreciation is easy especially for now just telling you this is how much you will need to depreciate. So you need to memorize the entry how to how to record the depreciation expense its depreciation expense debit goes up accumulated depreciation equipment 200 goes up remember.

This is a contra asset. Account. That s a negative asset during the during marsh services were performed for one half of the unearned revenue. So this is the unearned revenue that we have we have an earned revenue of ninety two hundred and we are told we earned one half what does it mean we earned one half it means.

We did one half of the world..

So. What is one half of fourth out of nine thousand two hundred one half is 4600 therefore i need to reduce my unearned revenue 4600 and i still have a balance this is the balance this is the balance. I still have a balance of 4600 so when i reduce my unearned revenue under and revenue turns and to earn revenue or service. Revenue so i m gonna increase my revenue by 4600 so this is the entry and this is the entry i debit unearned service revenue which is a liability goes down and i credit service revenue my service revenue goes up so those are for adjusting entries hopefully it would reinforce what we just learned about prepaid and unearned revenue which are the thoreau the next topic we re gonna look at obviously is accrual accounting.

If you have any questions any comments by all means email. Me or see me in class once again if you re studying for your cpa exam always always always study hard it s worth it ” ..

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B. Adjusting Prepaid (Deferred) Expenses
1. Prepaid expenses (including depreciation) are assets paid for in advance of receiving their benefits. Prepaid expenses, also called deferred expenses, are assets. As the assets are used, their costs become expenses.
1. Common prepaid items are supplies, prepaid insurance, prepaid rent and depreciation.
3. Adjusting entries for prepaids involve increasing (debiting) expenses and decreasing (crediting) assets (with the exception of depreciation on plant and equipment).
C. Adjusting for Depreciation
1. Depreciation is the process of allocating the cost of plant assets over their expected useful lives.
2. Adjusting entries for depreciation expense involve increasing (debiting) expenses and increasing (crediting) a special account called Accumulated Depreciation. This account is classified as a contra-asset. It is linked to the asset as a subtraction and thus used to record the declining asset balance.
2. Book value is a term used to describe the asset less its contra-asset (accumulated-depreciation).
D. Adjusting Unearned (Deferred) Revenues
1. Unearned revenues (also called deferred revenues) are liabilities created by cash received in advance of providing products or services. The obligation is to provide the service or product. As they are provided, unearned revenues (liabilities) become earned revenues (revenues).
2. Adjusting entries for unearned revenues involve increasing (crediting) revenues and decreasing (debiting) unearned revenues.

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