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 dec 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 & prepaid insurance, yazici prepares quarterly financial statements?

1/1 ……………..31/3.1/4………..30/6.1/7……….30/9.1/10………..31/12/2019….1/1/2020……..31/3/2020

supplies: 
Journal entry ( purchase of supplies) 
5. Oct. Dr supplies    2,500      
       Cr cash                2,500 

adj entry : 
31/12 . dr supplies exp    1,500
        cr supplies                1,500

supplies used during period (3 months) = unadjusted supplies balance ( before use) – supplies on hand 31/12

                                = 2,500 – 1,000 = 1,500

Prepaid insurance 
journal entry ( advanced payment ) 
oct.4.2019 Dr prepaid insurance        600                      1- year 
           cr cash                         600 

adj entry 
31.12.2019 Dr insurance exp         150
            cr prepaid insurance        150

insurance for 3 months = 600*3/12 = 150 
insurance per month = 600/12= 50 …. Insurance for 3 months = 50*3 = 150 

31/3/2020. Dr insurance exp         150
            cr prepaid insurance        150

Example : Yazici Advertising purchased supplies costing 2,500 on October 5. An inventory count at the close of business on Dec 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 & prepaid insurance, yazici prepares semi-annually financial statements?

1/1…………….30/6. 1/7………1/10………31/12/2019 1/1/2020..…... 30/6/2020 

supplies: 

31.12 Dr supplies exp    1,500
       Cr supplies           1,500 

supplies used during the period ( 6 months ) = unadjusted supplies balance – supplies on hand 31/12
                                   = 2,500 – 1,000 = 1,500 

prepaid insurance : 

31/12/2019. Dr insurance exp             150
             Cr prepaid insurance             150 

insurance exp for 3 months = 600*3/12 = 150 

30/6/2020. Dr insurance exp       300 
            Cr prepaid insurance          300 
insurance exp for 6 months = 600*6/12 = 300 

Example : Yazici Advertising purchased supplies costing 2,500 on October 5.Supplies balance on 1/1 were 7,000. An inventory count at the close of business on Dec 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 & prepaid insurance, yazici prepares annual financial statements?
1/1…………..31/12
supplies 
31/12. Dr supplies exp  8,500 
        Cr supplies             8,500

supplies used during the period ( year) = unadjusted supplies balance ( before use) – supplies on hand 31/12
                               = (7,000+ 2,500 ) – 1,000 
                               = 8,500
Supplies	
Dr	Cr	
Beg bal                           7,000		
Oct.4                            2,500		
End bal before adj                  9,500 	Dec.31.           adj              8,500	
End bal after adj                    1,000		

prepaid insurance 
1/1 …………1/10………..31/12/2019 ..1/1……1/10……..31/12/2020
Adj entry : 
31/12/2019. Dr insurance exp    150 
            Cr prepaid insurance       150 
Insurance for 3 months = 600*3/12 = 150 

31/12/2020. Dr insurance exp        450 
            Cr prepaid insurance            450 

insurance for 9 months = 600*9/12 = 450 

(c) Depreciation اهتلاك 
long term assets that has a useful life . Ex: Building , equipment
depreciation : allocation of the assets cost to expense over its useful life.

Assume: On October..1 Yazici purchased equipment costing 5,000. depreciation on the equipment is 480 a year. 
Demonstrate: How do you record the adjustment for depreciation, 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 equipment) 
1.Oct. Dr equipment       5,000
       Cr cash                    5,000

Adj entry : 
31.oct. Dr depreciation exp               40 
         Cr Accumulated depreciation – equipment           40   ( contra asset account – Increases cr- decreases Dr ) 

dep per month = dep per year /12 = 480/12 = 40  
Equipment	
Dr	Cr	
Beg bal                               0 		
1.Oct                              5,000 		
End bal before adj                    5,000		

Acc dep – Equipment	
Dr	Cr	
	Beg bal                               0 	
	End bal before adj                       0 	
	31. oct.             adj                40	
	End bal after adj                       40 	

Dep exp 	
Dr	Cr	
End bal before adj                    0		
31.oct              adj             40 		
End bal after adj                      40 		

                          statement of financial position  
Assets 
   equipment             5,000 
   less: acc dep – equ        (40)           4,960           Book value ( it is not fair value) 

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 

ed, assets overstated