-BALANCE DAY ADJUSTMENTS – ALWAYS TAKE GST OUT
TIME LINE End of Period (Days, Weeks, Months, Year)
Periods before EndPeriod after End
Portion of the period payment has Adjustment Commencement of next period.
made to. Amount On day 1 we reverse the Adjustment Amount
Adjustment
Period
Balance Day Adjustments (BDA).
-Doing a book entry – NO CASH INVOLVED
We are creating a transaction to match all Income and Expenditure to the Fiscal Period they relate too. In other words we are accounting for Income and Expenditure in their rightful period.
Treat all transactions as fair in the Income Statement and Balance Sheet.
Because its and adjustment it’s not a real transactions in strict sense but merely a book entry.
These are the BDA’s are reversed on the following day, the first day of the new fiscal period.
There are 4 items that require BDA’s and they refer to Revenue and Expenses items only.
Accrued Items
OwingOwed
| |
Owed by the businessOwed to the business
But not PAIDBut paid in advance
| |
ExpensesIncome
| |
Current Liability Current Assets
Prepaid
By the BusinessTo the Business
The business has paid an The business receives
Expenses but the benefit Income and the benefit
carries in the next fiscal and the benefit carries into
period. next fiscal period.
e.g., Insurance, Rent, etc e.g., Rent Received, Interest Received, etc
Balance Day Adjustments consist of two parts;
- Expenses or Income to reflect the $value of number of Periods to the End of the period.
Expenses represent an increase in the expense to pay .
Expenses = Dr. Expense Account
Prepaid Expenses represents a decrease in the expense we pay .
Prepaid Expenses = Dr. Prepaid – Expenses Account.
- We create a “NEW ACCOUNT to reflect what we owe or are owes.
For Accrued Expenses we create a Liability account Cr. Accrued – Name of the Expense.
For Prepaid Expenses we create a Liability account Cr. Prepaid – Name of Prepaid Expense.
Example:
Company A pay wages every Wednesday for the previous week ending Sunday. Weekly wages total $27,000. The fiscal year end on 30th June which is a Saturday, the last pay for the current year was Wednesday 27th June. Calculate the accrued wages for the end of the current fiscal year.
S S M T W T F S S
23 24 25 26 27 28 29 30 1
Adjustment Period
Period close for wages
Wages paid End of Fiscal Period
- Wages per week $27,000
- $27,000/7 = $3,000 per day
- Adjustment period = 6 Days
- Adjustment amount 6*$3,000 = $18,000
General Journal entries for 30th June;
Date Particulars DebitCredit
30/6 Wages$18,000
Accrued – Wages$18,000
(Balance day Adjustments wages 30/6)
General Journal entries for 1st July;
Date Particulars DebitCredit
1/7 Accrued – Wages$18,000
Wages$18,000
(Reversal of Balance Day Adjustment wages)
Pre-Payments relate to expenses paid in advance.
-Paying expenses NOW but the benefit goes into the next fiscal period.
e.g., Paid Insurance premiums $13,200 on 1/4/20XX for the period if 1/4/20XX to 31/3/20XY
With any payment that has had GST included it must be removed from the amount.
$13,200/11 = $1,200GST Insurance = $12,000
- Premium = $12,000
- Paid in advance = $12,000/12 * 9 = $9,000
General Journal entries for 30th June;
Date Particulars DebitCredit
30/6 Prepaid - Insurance$9,000
Insurance$9,000
(Balance day Adjustments Insurance 30/6)
General Journal entries for 1st July;
Date Particulars DebitCredit
1/7 Insurance$9,000
Prepaid - Insurance$9,000
(Reversal of Balance Day Adjustment Insurance)
INCOME:
Balance Day Adjustment Cycle for
Income
OwingOwed
Not Received Paid In Advance
Increase Income (Cr) Decrease Income (Dr)
Create ASSET Account (Dr) Create LIABILITY Account (Cr)
Reverse Entries on 1st day of next Fiscal Period
Eg; income owing but not yet received is $1370
Date / Particulars / Debit / Credit(a) / $ / $
20X4
June 30 / Accrued income / 1370
Commission income / 1 370
Income due not received
(b)
July 1 / Commission income / 1 370
Accrued income / 1 370
Reversal of balance day adjustment
(c)
Commission Income 2004
20X4 / 20X4June 30 / Profit & loss / 1 370 / June 30 / Accrued income / 1 370
Commission Income 2005
20X4July 1 / Accrued income ® / 1 370
(d)
Accrued Income
20X4 / 20X4June 30 / Commission income / 1 370 / June 30 / Balancec/d / 1 370
1 370 / 1 370
July 1 / Balanceb/d / 1 370 / July 1 / Commission income ® / 1 370
INCOME RECEIVED IN ADVANCE
(Pre received Income)
Relates to income received in advance e.g. rent, commissions, etc
REMEMBER TAKE OUT ANY GST.
Dr Income
Cr Income Received in Advance ( current Liability)
Example of BDA as they affect the Financial Statements
Books of E. Giffen
Trial Balance as at 30 June 20X4
Trial BalanceBalance Day Trial Balance
Pre AdjustmentsAdjustment Post Adjustments
Particulars / Debit / Credit / Debit / Credit / Debit / CreditStock / 11,400
Land & Buildings / 140,000
Office Equipment / 14,700
Bank / 11,000
GST- Paid / 7,900
GST – Collected / 8,000
Sales / 86,400
Commission Income / 5,100
Rent Income / 8,600
Cost of Goods Sold / 51,300
Insurance / 16,100
Salaries / 10,400
General Expenses / 1,760
Capital / 156,460
Totals / 264,560 / 264,560
Books of E. Giffen
Trial Balance as at 30 June 20X4
Trial BalanceBalance Day Trial Balance
Pre AdjustmentsAdjustment Post Adjustments
Particulars / Debit / Credit / Debit / Credit / Debit / CreditStock / 11,400
Land & Buildings / 140,000
Office Equipment / 14,700
Bank / 11,000
GST- Paid / 7,900
GST – Collected / 8,000
Sales / 86,400
Commission Income / 5,100 / 350
Rent Income / 8,600 / 1,100
Cost of Goods Sold / 51,300
Insurance / 16,100 / 700
Salaries / 10,400 / 440
General Expenses / 1,760
Capital / 156,460
Totals / 264,560 / 264,560
Accrued Expenses - Salaries / 440
Pre-paid Insurance / 700
Accrued Income – Commission / 350
Income Received In Adv - Rent / 1,100
Totals / 2,590 / 2,590
Books of E. Giffen
Trial Balance as at 30 June 20X4
Trial BalanceBalance Day Trial Balance
Pre AdjustmentsAdjustment Post Adjustments
Particulars / Debit / Credit / Debit / Credit / Debit / CreditStock / 11,400 / 11,400
Land & Buildings / 140,000 / 140,000
Office Equipment / 14,700 / 14,700
Bank / 11,000 / 11,000
GST- Paid / 7,900 / 7,900
GST – Collected / 8,000 / 8,000
Sales / 86,400 / 86,400
Commission Income / 5,100 / 350 / 5,450
Rent Income / 8,600 / 1,100 / 7,500
Cost of Goods Sold / 51,300 / 51,300
Insurance / 16,100 / 700 / 15,400
Salaries / 10,400 / 440 / 10.840
General Expenses / 1,760 / 1,760
Capital / 156,460 / 156,460
Totals / 264,560 / 264,560
Accrued Expenses - Salaries / 440 / 440
Pre-paid Insurance / 700 / 700
Accrued Income – Commission / 350 / 350
Income Received In Adv - Rent / 1,100 / 1,100
Totals / 2,590 / 2,590 / 265,350 / 265,350