New Language and How to Get Along

When expenses are paid in advance and adjusted at the expiry of period. The insurance of factory was paid on July, 1 for 12 months $12000. The years ends on Dec 31st, the following adjusting entry to be passed.

Factory overhead – Insurance Expenses Dr. 6000

Prepaid Insurance Cr. 6000

1. When receipt against sales were made in advance and adjusted at the time of supply of goods. For example, a customer has paid $20000 as advance for delivery of goods, when goods are delivered, the following adjusting entry will be passed:

Advance from customer Dr. 20000

Sales revenue Cr.20000

2. When expenses have been incurred but not paid. The salary of supervisor for $10000 for the month of December is paid in the month of Jan. The following adjusting entry to be passed on Dec 31.

Factory overhead – Salaries and allowances Dr. 10000

Salaries payable Cr.10000

3. When revenues have been earned but not yet received. The goods supplied to customer for $5000 but not recorded in the books of accounts at the year end. The following entry to be passed.

Account Receivable Dr.5000

Sales Cr. 5000

They will be entered through general journal and then posted to appropriate ledger accounts in computerized accounting system, if they are readymade software such as Peachtree or QuickBooks.

Ethical issue:

1. As it is management responsibility to give true and fair view of the financial position of the company, if adjusting entries are not passed it can not be done, which is unethical to give untrue and unfair view of the financial position of the company.

2. No passing the adjusting entry violates the basic principle of accounting such as accrual and matching principle, which is also unethical.