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Financial Accounting
John J. Wild Seventh Edition
Copyright © 2015 McGrawHill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGrawHill Education.
Chapter 3
Adjusting Accounts for Financial Statements
C2, P1 Adjusting Accounts
An adjusting entry is recorded to bring an asset or liability account balance to its proper amount as
well as update any related revenue or expense
Framework for Adjustments Adjustments
Paid (or received) cash before expense (or revenue) recognized
Paid (or received) cash after expense (or revenue) recognized
Prepaid (Deferred)
expenses*
Unearned (Deferred) revenues
Accrued expenses
Accrued revenues
*including depreciation 33
A1 Links to Financial Statements
Summary of Adjustmentsand Financial Statement Links Before Adjustment
Type Prepaid Expenses Unearned
Revenues
Balance Sheet Account
Asset Overstated Equity Overstated Liability Overstated
Equity Understated
Income Statement Account
Expense Understated Revenue
Understated
Adjusting Entry Dr. Expense
Cr. Asset Dr. Liability
Cr. Revenue
Accrued Liability Understated Expense Dr. Expense
Expenses Accrued
Revenues
Equity Overstated Asset Understated
Equity Understated
Understated Revenue
Understated
Cr. Liability Dr. Asset
Cr. Revenue
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P2 FastForward – Computing the Adjusted Trial Balance - December 31, 2013
The adjusted trial balance combines the unadjusted trial balance account balances with the adjustments we make.
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