Tow main types of adjusting entries : 

- Deferrals   مؤجلات 
تاجيل الاعتراف بالمصروف او الايراد ( بعد قبض اودفع الكاش )

 (1) prepaid expense 
(2) unearned revenue   
- accruals   مستحقات 
الاعتراف بالمصروف او الايراد عند الاستحقاق ( قبل قبض او دفع الكاش) 
(1) accrued revenue 
(2) accrued expense 

Deferrals : 

(1) Prepaid expense / prepayment 
expense that benefit more than one accounting period.

supplies , prepaid insurance/ prepaid rent , building / equipment 

(A) supplies 

Assume: Yazici Advertising purchased supplies costing 2,500 on October 5. An inventory count at the close of business on October 31 reveals that 1,000 of supplies are still on hand. 
Demonstrate: How do you record the adjustment for supplies, yazici prepares monthly financial statements?

1/1 …….31/1…… 28/2…..31/3……30/4…..31/5….30/6…..31/7…..31/8…..30/9….31/10….30/11 ….31/12
Journal entry ( purchase of supplies) 
5.Oct. Dr supplies    2,500 
       Cr cash            2,500 
Supplies	
Dr	Cr	
Beg bal                            zero 		
5.Oct                             2,500 		
End bal before adj                  2,500 		

Adj entry : 
31.Oct. Dr supplies exp       1,500 
        Cr supplies                 1,500 

supplies used during the period = unadjusted supplies balance( before adj) – supplies on hand at the end of the period 
                         = 2,500 – 1,000 = 1,500 

Supplies	
Dr	Cr	
Beg bal                            zero 		
5.Oct                             2,500 		
End bal before adj                  2,500 	31.Oct.               adj            1,500	
End bal after adj                   1,000 		

Supplies exp 	
Dr	Cr	
Beg bal                            zero 		
End bal before adj                    0 		
31.Oct.               adj            1,500		
End bal after adj                     1,500		

Adj entry: increased expense, decreased net income, decreased RE, decreased equity. Decreased assets.
Equity = S.C.O + RE 
RE = Beg RE + NI – Div 
NI = Rev – exp 

before adj entry : expense is understated, net income and RE and Equity overstated, assets overstated 

(b) Prepaid insurance/ prepaid rent / prepaid adv exp 
Assume: On October 4, Yazici Advertising paid 600 for a one-year fire insurance policy. Coverage began on October 1. 
Demonstrate: How do you record the adjustment for insurance, yazici prepares monthly financial statements?

1/1 …….31/1…… 28/2…..31/3……30/4…..31/5….30/6…..31/7…..31/8…..30/9….31/10….30/11 ….31/12

Journal entry : ( payment in advance) 
Oct.4 . Dr prepaid insurance exp   600 
       Cr cash                      600 

Adj entry : 
Oct.31. Dr insurance exp                50 
        Cr prepaid insurance exp               50 

insurance for one month = annual insurance / 12 months = 600/12 = 50 
Prepaid insurance 	
Dr	Cr	
Beg bal                            zero 		
4.Oct                              600  		
End bal before adj                   600	31.Oct.               adj            50	
End bal after adj (31/10)              550 		

Insurance exp 	
Dr	Cr	
Beg bal                            zero 		
End bal before adj                    0 		
31.Oct.               adj            50		
End bal after adj                     50		

Adj entry: increased expense, decrease net income , decreased RE, decreased equity. Decreased assets.
before adj entry: expense understated, net income & RE & equity overstated. Assets overstated 

Adj entry :
30.11. Dr insurance exp     50 
       Cr prepaid insurance         50 

insurance per month = 600 /12 = 50 
Prepaid insurance	
Dr	Cr	
Beg bal (1/11)                      550 		
End bal before adj ( 30.11)            550 	30.11                 adj              50 	
End bal after adj ( 31/11)             500		

Example : Yazici Advertising purchased supplies costing 2,500 on October 5. An inventory count at the close of business on October 31 reveals that 1,000 of supplies are still on hand. On October 4, Yazici Advertising paid 600 for a one-year fire insurance policy. Coverage began on October 1.
Demonstrate: How do you record the adjustment for supplies, yazici prepares quarterly financial statements?

Example : Yazici Advertising purchased supplies costing 2,500 on October 5. An inventory count at the close of business on October 31 reveals that 1,000 of supplies are still on hand. On October 4, Yazici Advertising paid 600 for a one-year fire insurance policy. Coverage began on October 1.
Demonstrate: How do you record the adjustment for supplies, yazici prepares semi- annual financial statements?

Example : Yazici Advertising purchased supplies costing 2,500 on October 5. An inventory count at the close of business on October 31 reveals that 1,000 of supplies are still on hand. On October 4, Yazici Advertising paid 600 for a one-year fire insurance policy. Coverage began on October 1.
Demonstrate: How do you record the adjustment for supplies, yazici prepares annual financial statements?