14.2 Balance-day adjustments
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VCE Accounting Unit 3
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14.2 Balance-day adjustments
- 2. © Michael Allison, Trinity Grammar School. Author’s permission required for external use The last day or end of the period is called balance day 14.2 BALANCE-DAY ADJUSTMENTS J F M A M J J A S O N D Firm reporting monthlyBalance Day J F M A M J J A S O N D Firm reporting quarterlyBalance Day J F M A M J J A S O N D Firm reporting yearly Balance Day
- 3. © Michael Allison, Trinity Grammar School. Author’s permission required for external use On balance-day it is essential that the firm: Close its revenue and expense accounts Balance its assets, liabilities and owner’s equity accounts Calculate its Net Profit Prepare its financial reports J F M A M J J A S O N D Firm reporting yearly Balance Day Balance Sheet Income Statement Cash Flow Statement 14.2 BALANCE-DAY ADJUSTMENTS
- 4. © Michael Allison, Trinity Grammar School. Author’s permission required for external use The Accounting System so far… Trial Balance 4. Prepare a Trial Balance 3. Enter transactions in General Ledger General Ledger Ledger Ledger Ledger Ledger 1. Transactions occur Transaction #1 Transaction #2 Transaction #3 Transaction #4 Transaction #5 Transaction #6 Transaction #7 Transaction #8 Special Journals 2. Special Journals Cash Receipts Journal Cash Payments Journal Sales Journal Purchase Journal Balance Sheet Income Statement 5. Prepare Financial Reports Cash Flow Statement 14.2 BALANCE-DAY ADJUSTMENTS
- 5. © Michael Allison, Trinity Grammar School. Author’s permission required for external use Before Net Profit can be determined, the firm needs to make balance- day adjustments to the Trial Balance to make sure that the firm’s: Cash numbers are updated The accrual numbers can be determined Net Profit = Revenue Received -- Expenses Paid Revenue Earned Expenses Incurred Balance-Day Adjustments Adjusting entries made in revenue and expense accounts on balance day to make them equal revenue earned and expenses incurred. 14.2 BALANCE-DAY ADJUSTMENTS
- 6. © Michael Allison, Trinity Grammar School. Author’s permission required for external use The Accounting System… Trial Balance 4. Prepare a Trial Balance 3. Enter transactions in General Ledger General Ledger Ledger Ledger Ledger Ledger 1. Transactions occur Transaction #1 Transaction #2 Transaction #3 Transaction #4 Transaction #5 Transaction #6 Transaction #7 Transaction #8 Special Journals 2. Special Journals Cash Receipts Journal Cash Payments Journal Sales Journal Purchase Journal Balance Sheet Income Statement 5. Prepare Financial Reports Cash Flow Statement Balance-DayAdjustments 14.2 BALANCE-DAY ADJUSTMENTS
- 7. © Michael Allison, Trinity Grammar School. Author’s permission required for external use Once balance-day adjustments have been made to the original Trial Balance, a new Trial Balance is prepared called the Adjusted Trial Balance… Trial Balance Balance-DayAdjustments Adjusted Trial Balance Adjusted Trial Balance • A list of the balance of the firm’s General Ledger accounts AFTER all balance-day adjustments have been made. • Used to check the total of all debit entries equals the total of all credit entries. 14.2 BALANCE-DAY ADJUSTMENTS
- 8. © Michael Allison, Trinity Grammar School. Author’s permission required for external use Balance-day adjustments required are for… Depreciation Prepaid Expenses Accrued Expenses Prepaid Revenue Accrued Revenue Unit 4 Chapter 13 14.2 BALANCE-DAY ADJUSTMENTS
- 9. © Michael Allison, Trinity Grammar School. Author’s permission required for external use Your mobile phone can be paid one of two ways… Balance Sheet at 31 July Current Assets $ Prepaid phone expense 50 At 31 July you have an Asset because: • You have a resource which you control • Arising from a past event • There will be an inflow of future economic benefits This is a Prepaid Expense 14.2 BALANCE-DAY ADJUSTMENTS To be used in August Prepaid phone $50 prepaid in July for August’s calls AugustJuly
- 10. © Michael Allison, Trinity Grammar School. Author’s permission required for external use Your mobile phone can be paid one of two ways… At 31 August you have a Liability because: • You have a present obligation • Arising from a past event • There will be an outflow of future economic benefits This is an Accrued Expense 14.2 BALANCE-DAY ADJUSTMENTS Calls made in August August September $50 Balance Sheet at 31 August Current Liabilities $ Accrued phone expense 50
- 11. © Michael Allison, Trinity Grammar School. Author’s permission required for external use Cash Paid Expense Incurred Cash Paid Prepaid Expense Accrued Expense 14.2 BALANCE-DAY ADJUSTMENTS
- 12. © Michael Allison, Trinity Grammar School. Author’s permission required for external use TASK In-class Homework SQ3 X