CHAPTER 3: ADJUSTING THE ACCOUNTS

I. Explain the accrual basis of accounting and the reasons for adjusting
entries.
 Accountants divide the economic life of a business into artificial time periods
(Time Period Assumption).
Generally a: month, quarter, or year
 Fiscal and Calendar Years
- Monthly and quarterly time periods are called interim periods. ( kì kế toán theo
tháng và theo quí được gọi là kì kế toán tạm thời)
- Most large companies must prepare both quarterly and annual financial
statements. ( Các cty lớn đều lập báo cáo tài chính theo quí và theo năm)
- Fiscal Year (năm tài chính) = Accounting time period that is one year in length.
- Calendar Year = January 1 to December 31.
 Accrual- versus Cash-Basis Accounting ( kế toán dồn tích so với kế toán trên cơ
sở tiền mặt)
Accrual-Basis Accounting( kế Cash-Basis Accounting: kế toán
toán trên cơ sở dồn tích) dựa trên tiền mặt
Transactions recorded in the
periods in which the events
occur. ( nghiệp vụ kế toán đc ghi
nhận khi có sự kiện phát sinh)
Revenue recognize revenues when they recognized when cash is received
perform services rather than ( được ghi nhận khi đã thanh
when they recieve cash (đc ghi toán)
nhận khi cung cấp dịch vụ
Expense are recognized when incurred recognized when cash is paid
(rather than when paid). ( đc ghi (được ghi nhận khi tiền thực chi)
nhận khi phát sinh chi phí bất kể đã
trả tiền hay chưa)
generally Accordance with GAAP Not accordance with GAAP
accepted
accounting
principles
(GAAP).
Notes:
Revenue is recognized when performance obligation is satisfied ( doanh thu đc ghi nhân
khi kì kế toán đã cung cấp dịch vụ, khi chuyển giao quyền sở hũu cho khách hàng)
The expenses follow the revenues (chi phí ghi nhận phù hợp với doanh thu)
 The need for adjusting entries
- Adjusting entries:
 Ensure that the revenue recognition and expense recognition principles are
followed.
 Necessary because the trial balance may not contain up-to-date and complete
data. ( cần thiết bởi bảng cân đối thử có thể chưa bao gồm thông tin mới cập nhật)
 Required every time a company prepares financial statements.
 Will include one income statement account and one balance sheet account.
(báo cáo kết quả kinh doanh lq đến doanh thu/chi phí + 1 tài khỏan liên quan đến
bảng cân đối( asset/liabilities)
 Types of adjusting entries
 II. Prepare adjusting entries for deferrals
Deferrals are expenses or revenues that are recognized at a date later than the
point when cash was originally exchanged. There are two types:
 Prepaid expenses
 Unearned revenues
Prepaid expenses Unearned revenues
Payment of cash, that is recorded as an asset to Receipt of cash that is recorded as a liability
show the service or benefit the company will because the service has not been performed
receive in the future.

*Cash payment before expense recorded * Cash reciept( biên lai tiền mặt) before revenues
recorded

*Prepayments often occur in regard to: * Unearned revenues often occur in regard to:
insurance, supplies, advertising, rent, equipment, rent, airline tickets, magazine, Customer
buildings. deposits: tiền đặt trc của khách hàng

*Expire either with the passage of time or *Adjusting entry is made to record the revenue
through use. for services performed during the period and to
show the liability that remains at the end of the
period.
*Adjusting entry: *Results in a decrease (debit) to a liability
Increase (debit) to an expense account and account and an increase (credit) to a revenue
Decrease (credit) to an asset account account.
NOTES: Giá trị đã sử dụng = Số dư đầu kì +mua vào -giá trị tồn kho
  Depreciation: quá trình chích khấu hao
- Buildings, equipment, and motor vehicles (assets that provide service for many
years) are recorded as assets, on the date acquired.
- Depreciation is the process of allocating the cost of an asset to expense over its
useful life. (Phân bổ chi phí của một tài sản vào chi phí trong suốt thời gian sử
dụng nó.)
- Depreciation does not attempt to report the actual change in the value of the
asset.
- Accumulated Depreciation (khấu hao lũy kế) is a contra asset account (credit).
Ngc với asset account/ Điều chỉnh giảm cho tài sản
- Offsets related asset account on the balance sheet.
- Book value is the difference between the cost of any depreciable asset and its
accumulated depreciation.
EXAMPLE: Illustration: For Pioneer Advertising, assume that depreciation on the
equipment is $480 a year, or $40 per month.

NOTES: accumulated depreciation tính vào phần assets nhưng ghi vào phân credit
III. Prepare adjusting entries for accruals.
 Accruals are made to record
- Revenues for services performed but not yet recorded at the statement date.
- Expenses incurred but not yet paid or recorded at the statement date.
Accrued Revenues Accrued Expenses
Revenues for services performed but not yet Expenses incurred but not yet paid in cash or
received in cash or recorded recorded

Revenue recorded before cash reciept Expense recorded before cash payment

Accrued revenues often occur in regard to: rent, Accrued expenses often occur in regard to: rent,
interest (tiền lãi), services interest, taxes, salaries

Adjusting entry shows the receivable that exists Adjusting entry records the obligation and
and records the revenues for services recognizes the expense.
performed.
Adjusting entry:
Adjusting entry: Increase (debit) an expense account and
Increases (debits) an asset account and Increase (credit) a liability account.
Increases (credits) a revenue account.

 Preparing Financial Statements

Financial Statements are prepared directly from the Adjusted Trial Balance.
Income statement -> owner’s equity statement -> balance sheet