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Accounts payable tracks all of the bills before they are paid for in cash. Say a $500 internet bill arrives for May service, but is not due until next month. The $500 internet expense is recorded in May with a debit and a $500 AP is recorded with a credit. When the bill is paid for in cash the next month, AP will decrease with a $500 debit and cash will decrease with a $500 credit. Review the three adjusting entries that follow.


However, one simple approach is called the straight-line , where an equal amount of asset cost is assigned to each year of service life. Examples of supplies include pens, paper, and pencils.

The Adjusting Process And Related Entries

Each type of tax form has an expense line for depreciation. Showing depreciation in this way allows the reader to see the full value of the assets and the decrease in value, with the resulting book value. Depreciation is a way to account for changes in the value of an asset. (An asset is something that has continuing value, like a computer, a car, or a piece of machinery.) It represents the decrease in the value of an asset over time. Liabilities are the debts that a corporation owes and the fees that it must pay to be in business. Whether it’s a long-term loan or a payment that needs to be paid, debt is a problem.

What is the effect of recording depreciation adjusting entries on the assets?

If depreciation adjustments are not recorded, assets on the balance sheet would be overstated. Additionally, expenses would be understated on the income statement causing net income to be overstated. If net income is overstated, retained earnings on the balance sheet would also be overstated.

Usually the trigger is from an original source. Recall that an original source can be a formal document substantiating a, such as an invoice, purchase order, cancelled check, or employee time sheet. Not every transaction produces an original source document that will alert the bookkeeper that it is time to make an entry. Since the company has not yet paid salaries for this time period, Printing Plus owes the employees this money.

3 Record and Post the Common Types of Adjusting Entries

After the first month, the company records an adjusting entry for the rent used. The following entries show initial payment for four months of rent and the adjusting entry for one month’s usage.