The previous lesson covered Adjusting Prepaid Rent & Prepaid Insurance & Supplies.

This LESSON covers cases where you did work but never recorded it & where Expenses were incurred (used) but never recorded. They usually are overlooked because no CASH was collected or paid.

Page 116-- printout-- line 8... the Liability Account Unearned Rent has a balance of $360. Recall that this Liability is created when we collect the rent from the tennant in advance. On December 1 we collected $360 for the months of December,January,February. ( $120 a month). As of December 31 there are 2 months remaining on the lease. Our adjustment is to reduce the Liability & increase the Revenue Account. Page 121 has the entry.

Another example of a case where work was done but not recorded can be found on page 117. NOTE: the word ACCRUE is an Accounting word for add.

The example is a case where we contracted to do work for the customer on a demand basis on credit. We agreed to bill the customer on the 15th of the month. The textbook is pointing out that all the work we did from December 15-31 was never recorded. This entry adds (accrues) all that work. Notice that in addition to the Revenue account; we are increasing the Asset ACCOUNT RECEIVABLE as the customer owes us this amount.

Adjustments to Accrue Expenses are also common. The simplest example would be a case where the December electric bill was not recorded. The electricity was used by the business (EXPENSE) but not recorded. We would increase UTILITIES EXPENSE & ACCOUNT PAYABLE, as we owe the $.

Another typical example is when December 31 is not payday.

Please turn to Exhibit 5 on page 119. The last payday was Friday December 27. The employees worked on Monday December 30 & Tuesday December 31. Obviously we need to increase the WAGES EXPENSE & create a Liability WAGES PAYABLE.

When you review the chapter you see that the DEPRECIATION Adjustment was skipped. It will be covered later in the course.

Please turn to pages 154-155 PR 3-5B. You see 7 DOTS -- for 7 entries. Skip the first 2 that deal with Depreciation. Submit entries for the remaining 5. This a 15 point Assignment that is due by 11pm Monday night.... Omit explanations--only send me the 5 entries- they are worth 3 points each.