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 

adj entry
30/11. Dr dep exp                   40 
       Cr acc dep – equipment            40 

Acc dep	
Dr	Cr	
	Beg bal 1/11                       40    	
	30/11                adj          40 	
	End bal after adj                    80 	

Calculate the book value that will appear on the company’s 30.Nov balance sheet 
book value equipment = cost – acc dep 30/11 
                  = 5,000 – 80 = 4,920 

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 quarterly financial statements?
1/1 …………..31/3 ……….30/6 …………30/9 …1/10………31/12 
Adj entry : 
31/12/2019  Dr dep exp               120
              Cr acc dep – equipment              120 
Depreciation for 3 months = 480*3/12 = 120 

adj entry : 

31/3/2020. Dr dep exp               120
              Cr acc dep – equipment              120.

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 annual financial statements?
1/1……1/10…….31/12…………..31/12

Adj entry : 
31/12/2019 . Dr dep exp        120 
             Cr acc dep – equipment       120 
 
dep for 3 months = 120 

31/12/2020 . Dr dep exp        480 
             Cr acc dep – equipment       480

Calculate the book value of equipment on 31/12/2020 that will appear in balance sheet 

Book value = cost – acc dep 31/12/2020 
         = 5,000 – 600 = 4,400 

Acc dep	
dr	Cr	
	Beg bal 1/1/2020                      120 	
	31/12/2020              adj          480	
	End bal after adj                       600	

(2) unearned revenue 
cash received in advance before providing a service . adjusting entry is made when services are provided 
Assume: Yazici Advertising received 1,200 on October 2 from R. Knox for advertising services expected to be completed by December 31 ( each month equally). . 
Demonstrate: How do you record the adjustment for advertising revenue? ( 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 : 
Oct.2. Dr cash            1,200 
        Cr unearned service revenue         1,200 
Adj entry : 
Oct.31. Dr unearned service revenue   400 
         Cr service rev                   400 
Services that will be performed until dec.31. ( 3 months) = 1,200 
Services performed during one month = 1,200 /3 = 400 
Unearned service rev ( liab)	
Dr	Cr	
	Beg bal                                0 	
	Oct.2.                              1,200	
31/10                 adj            400	End bal before adj                     1,200	
	End bal after adj                      800	

service rev ( equity)	
Dr	Cr	
	During oct                          10,000	
	End bal before adj                    10,000	
	31/10                    adj        400	
	End bal after adj                    10,400	

adj entry : decreased liability, increased revenue & NI & RE & Equity 
before adj : liability overstated. Revenue & RE & NI & Equity understated.
30/11/ Dr unearned service rev     400
         Cr service revenue              400 
Unearned rev	
Dr	Cr	
30/11                adj             400	Beg bal 1/11                        800 	
	End bal after adj                     400 	

31/12 Dr unearned service rev     400
         Cr service revenue              400 
Unearned rev	
Dr	Cr	
30/11                adj             400	Beg bal 1/11                        400 	
	End bal after adj                     0  	

Accruals: مستحقات 
(1)	Accrued revenue 
Reasons for recording an adjusting entry for accrued rev : revenue accrue with the passage time ( interest rev )of or revenue accrue when services are performed and not recorded.

(A) Interest rev 

Shatha ------------------------------------------------------- ------------------------------------ Adel 
       Note 1/5 
       face value = 20,000 
       annual interest rate = 5%
       maturity date = 3 months
Journal entry :                           
1.may. Dr note rec  20,000                               Dr cash   20,000 
       Cr cash        20,000                            Cr note pay       20,000

monthly F.S 
Adj entry : (accrued rev)                              (Accrued exp) 
31.may. Dr interest receivable   16.67                31/may   Dr interest exp  16.67
         Cr interest revenue          16.67                    Cr interest pay    16.67

interest for one month = Face value * annual interest rate * time in term of one period 
                  = 20,000 *1% *1/12 =  16.67

    (B) revenue accrue when services are performed and not recorded.

Assume: In October, Yazici Advertising performed services worth $200 that were not billed to clients on or before October 31. Because these services were not billed, they were not recorded. 
Demonstrate: How do you adjust for accrued revenue , 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

adj entry : 
31/10 . Dr acc rec          200 
        Cr service rev           200 

adj entry : increase assets, increase revenue & NI & RE & equity 
Before adj : assets understated, revenue & NI & RE & equity understated 
Acc rec	
Dr	Cr	
Beg bal                            0 		
End bal before adj                    0 		
31/10                 adj         200 		
End bal after adj                    200 		

Service Rev 	
Dr	Cr	
	During oct                      10,000	
	End bal before adj                10,000	
	31/10                adj         200	
	31/10                adj         400 	
	End bal after adj                  10,600	

Assume: On November 10, Yazici receives cash of 200 for the services performed in October . 
Demonstrate: How do you record the collection of the receivables? 
10.11 . Dr cash    200
        Cr acc rec       200
(2)	Accrued expense 
(A) accrued interest 
Assume: Yazici Advertising signed a three-month note payable in the amount of 5,000 on October 1.2019. The note requires Yazici to pay interest at an annual rate of 12%. 
Demonstrate: 
(1)	How do you determine the interest to be recorded?
(2)	How do you create the adjustment for accrued interest, assume the company prepares monthly financial statements?

Face value = 5,000 
ann. Interest rate = 12%
maturity date : 3 month …. 1/1/2020
maturity value = face value + interest on the note 
            = 5,000 + ( face value * ann int rate * time in term of one year) 
            = 5,000 + ( 5,000*12%*3/12) 
            = 5,150 

Journal entry : 
1.Oct. Dr cash           5,000
       Cr Note pay              5,000 

(1) interest = face value * ann int rate * time in term of one year
         = 5,000*12%*3/12 = 150 

(2) adj 
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
Adj entry : 
31.Oct. Dr interest exp            50 
        Cr interest pay                50 

interest for one month = 5,000*12%*1/12 = 50  

Interest exp	
Dr	Cr	
End bal before adj                        0 		
31.Oct             adj                50 		
End bal after adj                        50		

Interest pay	
Dr	Cr	
	End bal before adj                        0 	
	31.Oct             adj                50 	
	End bal after adj                        50	

Note pay	
Dr	Cr	
	Beg bal                                 0	
	1.Oct                               5,000	
	End bal before adj                     5,000 	

adj entry : increased exp, Decreased NI & RE & Equity. Increased liability 
Before adj : expense understated, NI & RE & Equity overstated. Liability understated 

30.Nov. . Dr interest exp            50 
        Cr interest pay                50

31.Dec. Dr interest exp            50 
        Cr interest pay                50

payment of note and interest 
1/jan.2020. Dr note pay               5,000        face value 
         Dr interest pay              150
            Cr cash                           5,150     maturity value 

Assume: Yazici Advertising signed a three-month note payable in the amount of 5,000 on October 1.2019. The note requires Yazici to pay interest at an annual rate of 12%. 
Demonstrate: 
(1)	How do you determine the interest to be recorded?
(2)	How do you create the adjustment for accrued interest, assume the company prepares quarterly financial statements?

Face value = 5,000 
ann. Interest rate = 12%
maturity date : 3 month …. 1/1/2020
maturity value = face value + interest on the note 
            = 5,000 + ( face value * ann nt rate * time in term of one year) 
            = 5,000 + ( 5,000*12%*3/12) = 5,150 

(2) adj entry : 
1/1 ……………….31/3 ……………..30/6 ……………..30/9 …1/10……………31/12

adj entry : 
31.Dec. Dr interest exp       150 
        Cr interest payable           150 

interest for 3 months = 5,000*12%*3/12

Payment of note and interest 
1/1/2020. Dr Note payable  5,000 
         Dr interest pay    150 
           Cr cash                             5,150 

Assume: Yazici Advertising signed a three-month note payable in the amount of 5,000 on September. 1.2019. The note requires Yazici to pay interest at an annual rate of 12%. 
Demonstrate: 
(1)	How do you determine the interest to be recorded?
(2)	How do you create the adjustment for accrued interest, assume the company prepares semi-annual financial statements?

Face value = 5,000 
ann. Interest rate = 12%
maturity date : 3 month …. 1/12/2019
maturity value = face value + interest on the note 
            = 5,000 + ( face value * ann nt rate * time in term of one year) 
            = 5,000 + ( 5,000*12%*3/12) = 5,150

(2) adj entry : 
no adj entry 
1/1……………………30.6 ………1/9……………31.12

journal entry 
issuance of note entry 
1.Sep. Dr cash             5,000
       Cr note payable             5,000 
Payment entry 
1.Dec. Dr note pay          5,000
      Dr interest exp         150 
        Cr cash                            5,150

Assume: Yazici Advertising signed a one year note payable in the amount of 5,000 on September. 1.2019. The note requires Yazici to pay interest at an annual rate of 12%. 
Demonstrate: 
(1)	How do you determine the interest to be recorded?
(2)	How do you create the adjustment for accrued interest, assume the company prepares annual financial statements?

Face value = 5,000 
ann. Int. rate = 12%
maturity date: one year ……… 1/9/2020 
maturity value = face value + interest on the note 
            = 5,000 + (5,000*12%*1)
            = 5,600 

(2) Adj entry :
1/1 …………1/9………..31/12/2019 ………1/9…….. 31/12/2020 

31.dec.2019. dr interest exp       200
            Cr interest pay              200

interest for 4 months = 5,000*12%*4/12 = 200 

payment entry of note and interest : 

1.Sep.2020. Dr note payable     5,000
          Dr interest exp       400              (5,000*12%*8/12 ) 
          dr interest pay        200
            Cr cash                     5,600

    (B) Accrued Salaries and wages 

Assume: Yazici pays salaries and wages every two weeks ( 10 working days) . Consequently, the next payday is November 9, when the company will again pay total salaries and wages of 4,000. Knowing that the employees worked 3 days during October and will be paid on Nov.9. 
Demonstrate: What is the adjusting entry on Oct.31 and payment entry on November 9 , 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
27.Oct ……………oct.31…………….Nov 9 
         4,000 
adj entry : 
Oct.31. Dr salaries and wages exp              1,200 
          Cr salaries and wages payable                1,200 

Wage per working day = 4,000/10 = 400 
wage for 3 working days = 3*400 = 1,200 
S & W exp	
Dr	Cr	
End bal before adj                    4,000		
Oct.31.               adj           1,200 		
End bal after adj                     5,200 		

S & W pay	
Dr	Cr	
	End bal before adj                     0 	
	Oct.31.               adj           1,200 	
	End bal after adj                     1,200 	

Adj entry : Increased expense, Decreased NI & RE & Equity. Increased liability 

Before adj : expense understated , NI & RE & Equity overstated. Liability understated

payment entry : 

9.nov. Dr salaries and wages pay             1,200 
     Dr salaries and wages exp             2,800                    (7*400 = 4,000-1,200 )
       Cr cash                                 4,000           

Yazici adv As 
Adjusted trial balance 
Oct.31.2020 	
	Dr	Cr	
Cash 	15,200		
Supplies 	2,500-1,500 = 1,000 		
Prepaid insurance	600-50 = 550 		
Acc rec 	200 		
Equipment 	5,000		
Acc dep – equipment 		40 	
Note payable 		5,000	
S & w pay 		1,200 	
Interest pay 		50 	
Account payable 		2,500	
Unearned service rev 		1,200-400 = 800 	
S.C.O 		10,000	
RE (beg bal/end bal after adj)		0	
Div 	500		
Service rev 		10,000+400 +200 = 10,600 	
S & W exp 	4,000+1,200 = 5,200 		
Rent exp 	900		
Supplies exp 	1,500 		
Insurance exp 	50 		
Dep exp 	40 		
Interest exp 	50 		
	30,190 	30,190 	

income state / RE / Balance sheet