Question

Most journal entries start with a document of some kind (check, invoice, etc). How do you calculate the amount of adjustments without a specific document?

Answer 1

CALCULATION OF AMOUNT OF ADJUSTMENTS:

1. Depreciation Expense:

Depreciation is calculated based on depreciable basis of asset, life of asset and depreciation method

2.Insurance Expense:

If insurance is paid for more than the accounting period, the insurance expense is calculated based on the ratio of prepaid insurance period and the accounting period.

3. Rent Expense:

If Rent  is paid for more than the accounting period, the Rent expense is calculated based on the ratio of prepaid insurance period and the accounting period.

4.Supplies Expense:

Supplies expense is calculated based on Beginning inventory of supplies, Purchases and Closing Inventory of supplies

5. Cost of goods sold:

In case of periodic inventory system, cost of goods sold is calculated based on Beginning inventory of merchandise, Purchases and Closing Inventory of merchandise.

6. Unearned Service Revenue :

Unearned revenue is adjusted based on services provided.

7.Provision for bad debts:

Provision for bad debts are estimated based on various methods like total credit sales, ageing of receivables etc