Adjusting Entries

13 : Prov. Doubtful Debt, Bad Debt &

Prov. Discount Allowed.
14 : Prov. For Depreciation
15 : Accrual and Prepayments
Adjusting Entries

 Requiredentries every time financial

statements are prepared.

 Why need adjustment?

– Some events are not necessary to record it daily
– Some items maybe unrecorded.
Cont’d

 What are the adjusting entries?

– Bad debts and provision for doubtful debts
– Fixed assets depreciation
– Accruals and Prepayments
Bad debts, Provision for Doubtful
Debts, and provision for discounts on
debtors
 BadDebts
 Why bad debts
– When a debtors cannot afford to pay their debts
(bankrupt)
– A Death
– Debtors cannot be found
 Baddebts – expense
 Recovered bad debts? – other revenue
Provision for Doubtful Debts

 Estimation of debts that probably will be a

bad debts.
 This estimation will be an yearly EXPENSE
 Provision for Doubtful debts will be calculated

*Net debtors x provision %

* (debtors – additional bad debts)
Provisions for cash discounts on
debtors (PDA)

 Business create a provision for cash

discounts to be allowed on the debtors
outstanding at the balance sheet date.
 This estimation is based on the net figure of
(net debtors – PDD).
 Not allowed in the bad debts.
Fixed Assets Depreciation

 Why depreciation? Remember

nature of fixed
 Physical deterioration assets?
• Wear and tear
• Erosion, rust, rot and decay
 Economic Factors RM

 Obsolescence 25,000
20,000
 Inadequacy 15,000
 Time 10,000
5,000
1,000
100

7 6 5 4 3 2 1 Years
Items to be remembered

 Cost Value – Value or price of the assets

 Residual value – Scrap value ( the remaining
amount all after its depreciate.)
 Useful life – The estimated years of use.
 Net Book Value – remaining balance after depreciation.
 Accumulated depreciation – (susutnilai terkumpul)
Methods of depreciation

 Straight Line Method (SLM)

Cost (Price) - Scrap Value
@ % on cost (price)
Estimated useful life

 Reducing Balance Method (RBM)

find percentage of RBM r =1 - @ % on net book

value
ACCRUALS AND PREPAYMENTS

The third
adjusting
entries
Accrued Revenue Prepaid Revenue

 Accrued Revenue  Prepaid Revenue

– Revenue/income – Revenue (which is
(ENTITLED in the NOT ENTITLED in
accounting year) that the accounting year)
which has NOT has been
BEEN RECEIVED RECEIVED by the
by the end of the end of the period.
period.
Accrued Expenses Prepaid Expenses

 Accrued Expense  Prepaid Expenses

– Expense (ENTITLED – Expense (NOT
in the accounting ENTITLED in the
year) that which has accounting year) that
NOT BEEN PAID yet which has BEEN
by the end of the PAID early by the
period end of the period
 Accruals – Add in
IS
Prepayments-Less
in IS

Adjusting entries I/S B/S

Accruals Add (revenue) CA

Revenue
Prepayments Less (revenue) CL

Accruals Add (expense) CL

Expenses
Prepayments Less (expense) CA