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Week 5 - Balance day adjustments (Bad and Doubtful Debts (Dr Doubtful…
Week 5 - Balance day adjustments
Needs for BDAs
Some journal entries have were recorded during the year and by balance date, they have changed
Some things have not been recorded
Accrual Expense/ Liability (expense that has been incurred but has not paid yet)
For example:
Dr
Staff Wages Expenses and
Cr
Accrual Staff Wages (Wages Payable)
Account Payable
only used when
purchase
something on credits
Accrual Revenue/ Asset (income may have been earned but not receive - already performed service but have not received money yet)
Revenue Receivable
(includes interest, dividends, rental income) while
Account Receivable
just include the Sales Revenue
For example:
Dr
Accrual Interest Revenue and
Cr
Interest Revenue
Prepaid Revenue/ Liability (already received the money but have not performed the service yet)
Transaction initially being recorded as LIABILITY
For example: on 1/6/2017 DR Cash at Bank $12,000 and Cr Prepaid Revenue (LIABILITY) $12,000
On 30/6/2017, already performed $8,000 => Dr Prepaid Revenue $8,000 and Cr Revenue $8,000
Transaction initially being recorded as an ASSET
For example, on 1/6/2017, Dr Cash and Cr Revenue
On 30/6/2017, already performed $8,000 => Dr Revenue $4,000 and Cr Prepaid Revenue $4,000
Prepaid Expense/ Asset (already paid the expense while it has not been incurred yet)
Initially recorded as an ASSET
For example, on 1/6/2017, Dr Prepaid Advertising $1,800 and Cr Cash $1,800
On 30/6/2017, already consumed $450 => Dr Advertising Expense $450 and Cr Prepaid Advertising $450
Initially recorded as EXPENSE
For example, on 1/6/2017, Dr Advertising Expense $1,800 and Cr Cash $1,800
On 30/6/2017, already consumed $450 => Dr Prepaid Advertising $1,350 and Cr Advertising Expense $1,350
Depreciation
Dr Depreciation Expense and Cr Accumulated Depreciation (contra asset)
Calculate Depreciation
Straight line method
: Depreciation (per year) = (Cost - Residual Value) / Useful life. This method is used when we use the asset equally during period
Reducing balance
: Depreciation = (Cost - Accumulated Depreciation) x Rate. This method is used when the company use the asset more frequently in the early years
Bad and Doubtful Debts
Dr Doubtful Debts Expense and Cr Allowance for Doubtful Debts (Contra Asset)
Net Receivable = Account Receivable - Allowance for Doubtful Debts
MUST SEE PPT FOR MORE DETAILS
When debts become bad
=> Dr Allowance for Doubtful Debts and Cr Account Receivable
When
recover a bad debts
=> 1. Dr Account Receivable and Cr Allowance for Doubtful Debts and 2. Dr Cash and Cr Account Receivable
MUST SEE PPT FOR EXAMPLES