Definition of Adjusting Journal

This time we will discuss the notion of adjusting journals and their objectives, functions and examples. Happy reading …

 

Table of contents :

Definition of Adjusting Journal

Function and Purpose of Adjusting Journal

Account That Must Be Adjusted

Example of Adjustment Journal Questions and Answers

How to Work on an Adjusting Journal

Share this:

Definition of Adjusting Journal

The definition of an adjusting journal is the process of adjusting the actual records or facts at the end of the accounting period. Adjusting entries are prepared based on data from trial balance and end-of-period adjustment data (information).

 

An adjusting entry is a journal that is made in the process of recording changes in balances in several accounts so that the balance reflects the actual amount of the balance.

 

Function and Purpose of Adjusting JournalDefinition of Adjusting Journal

The function of the adjusting journal based on the information above is as follows:

 

So that at the end of the period the real accounts, namely assets, liabilities and capital show the true condition.

Determine the ledger account balance at the end of the period so that each estimate of the real balance, especially the estimates of assets and liabilities, shows the actual amount.

Compute each estimated nominal (estimated income and expense) that is actual during the period.

So that nominal accounts, namely income and expense accounts, can be recognized in a period and show the actual situation.

Account That Must Be Adjusted

Not all accounts require an adjusting entry at the end of the accounting period. The accounts that are customarily adjusted at the end of the accounting period for service companies are as follows:

 

Prepaid expenses

Deferred revenue

Receivable income (accrued receivable)

Accrued expense

Depreciation of fixed assets

Use of equipment

Correction of recorded errors

Example of Adjustment Journal Questions and Answers

How to make an adjusting journal is actually easy, what needs to be paid attention is knowing the behavior of the transactions that occur.

 

Also Read:   Understanding Monopoly Market

And knowing the debit and credit rules in accounting is also important as a basis for compiling this adjusting entry.

 

Prepaid Expenses / Expenses

Often companies have paid expenses for several future periods, these expenses are called expenses / prepaid expenses. So, if you find expenses that should be paid in a future period, you must calculate which expenses are reported in the relevant period (now).

Case Example:

The balance sheet of the insurance account shows a value of Rp. 3,600,000. and at the end of the period, the account balance information shows that Rp. 3,000,000. this means that the insurance premium that has become an expense is Rp. 3,600,000 – Rp. 3,000,000 = Rp. 600,000 (which must be recognized as insurance expense and deducting prepaid insurance).

examples of prepaid expenses

Prepaid Building Rental Expenses

This case is the same as case number 1.

Case example: The

balance of prepaid rent account amounts to Rp. 19,200,000 does not indicate the actual situation, because the rent of Rp. 3,200,000. so the rental expense increases and the prepaid rent is reduced by Rp. 3,200,000.

example of building rental expenses

Accrued Income (Receivable Revenue)

Accrued income is if an income has become the right of the company but has not been received, then the right must be recorded as income in that period.

Case Example : The

company has completed the work amounting to Rp. 550,000. This amount does not include what is in the trial balance of Rp. 15,600.00 (receivables from company revenue). So recorded as adding to receivables income and service income of Rp. 16,150,000.

Accrued Income

Unearned Revenue

Unearned income may not be recorded as income, but as a debt, because the company has not realized the income for what it is not the company’s right.

Case Example : The

balance of income received in advance is Rp. 10,000,000. and until the end of the period the new company worked for Rp. 2,600,000. So recorded as increased rental income and income received in advance decreased by Rp. 2,600,000. This means that there is still Rp. 7,400,000 which are still owed by the company’s income.

Prepaid income

Depreciation of equipment.

Depreciation of equipment should be recorded as a depreciation expense or depreciation expense by the company.

Case Example : The

information shows that the depreciation expense for the period December 2017 is Rp. 1,400,000. So it will increase the depreciation expense and increase the accumulated depreciation of Rp. 1,400,000.

Depreciation of Equipment

Use of Remaining Equipment / Equipment

Supplies are materials purchased for the purpose of company operations and not for resale. The company must record the use of the equipment or make a physical count of the number of used or remaining equipment.

Case Example: the

balance of the equipment account in the trial balance of Rp. 4,400,000. At the end of the period the information shows that the equipment remaining is Ro. 2,700,000. means that the company has used the equipment for Rp. 4,400,000 – Rp. 2,700,000 = Rp. 1,700,000. so it is noted that increasing the cost of equipment and reducing equipment by Rp. 1,700,000.

Use of Equipment or Remaining

Also Read:   Understanding the Oligopsony Market

How to Work on an Adjusting Journal

The following figure shows how to solve and work on a case for an adjusting journal.

Leave a Comment