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Basic Accounting II Topic 1: Adjustment Process in the Books

UNIVERSITY OF THE ORIENT
NUCLEO DE SUCRE
DEPARTMENT OF ACCOUNTING
CHAIR: BASIC ACCOUNTING II
Prof(a): María Gómez

At the end of the fiscal year, companies proceed to analyze each of the accounts.
which make up the general ledger through the Trial Balance. One by one, the accounts are
analyzed in order to update or correct them through adjusting entries and
corrections. The purpose of adjusting entries is to assign to the financial year its
corresponding amounts for income and expenses.

ADJUSTMENT
Adjustments are operations or accounting entries that allow for the modification of an account to
closing of the accounting period. These entries simultaneously affect accounts of the Statement of
Results and the Statement of Financial Position.

In this sense, the adjustment process allows for compliance with the basic principle of accounting.
accumulation base, which consists of: properly balancing income and expenses, allocating
all revenues for the accounting period in which they are earned or accrued, deducting all the
expenses related to them, to prepare the Income Statement that will allow understanding the
business result. Adjust suggests to correct, regularize, normalize, among others.

NATURE OF THE ADJUSTMENT PROCESS

IMPORTANCE OF THE ADJUSTMENT PROCESS

Adjustments are important as they keep the account balances up to date.

and consequently determine correctly the results of the economic exercise. From the
previously it is derived that the Financial Statements after the adjustment process inform about
the true economic and financial situation of the company, which allows for decision-making
decisions based on reasonable figures.
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Basic Accounting II Topic 1: Adjustment Process in the Books

OBJECTIVE OF THE ADJUSTMENT PROCESS

In the accounting context, the purpose of adjustment entries is to carry the balances of the
accounts in the general ledger at their fair and exact value, which allow for the preparation of the statements
Financial professionals with reliable figures.

REASONS JUSTIFYING THE ADJUSTMENT PROCESS

These are the two fundamental principles for the adjustment process, and upon them rests the
accrual accounting:

Realization Principle (Revenue Recognition)

This principle indicates that revenues must be assigned to the economic period in which they are earned.
no to the economic period in which they are charged.

Principle of Association (Recognition of Income and association with Costs and Expenses)
necessary to produce them)

This principle states that the costs and expenses generating the income must be deducted from it.
to determine the profit, regardless of whether they are paid or not.

ADVANTAGES OF THE ADJUSTMENT PROCESS

1. Allows updating the general ledger accounts; in the case of errors, omissions, expenses and
income from the same period.
2. It allows assigning the corresponding income and expenses in a period.
accrued in the period.
3. Allows for the correct determination of the exercise result.
4. It presents in the Financial Statements reliable, truthful, objective, and timely information, which
it will be used for decision-making.

CLASSIFICATION OF ADJUSTMENTS

Accumulated Matches
They are those transactions that give rise to income or even expenses, but that despite having been
earned or caused have not been charged or paid to date. These accounts need to be
associated with the period when they actually occurred.

a) Accrued Expenses Payable

These are expenses that have been incurred or consumed by the closing date, but have not been paid, and for
this reason has not been accounted for. Within this group we have: Rents, Salaries and
Salaries, Interests, Accrued Liabilities, Commissions. The adjusting entry is made
charging or debiting an EXPENSE account and crediting or accrediting a LIABILITY account.

EXAMPLES:
On 12-16-2021, the company leases a commercial premises, with a monthly rental fee of
Bs. 350.00, which will be paid for the months due. An adjustment is requested as of the closing date 31-12-2020.
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Basic Accounting II Topic 1: Adjustment Process in the Books

Analysis: the first month of rent will be paid on 01-16-2021, so it should be reflected as an expense for the year.
2020 the 15 days of rent overdue as of the closing date:
31-12-2020 closing date
12-16-2020 rental date
15 0 0 adjustment of 15 days = 0.5 month
Then this value is multiplied by the lease fee and the amount to be recorded as is obtained.
expense of the period, but has not been paid yet:
Amount to adjust: 350.00 x 0.5 months = 175.00 or (350x15)/30 = 175.00

The adjustment entry is recorded with a debit to the expense account, in this case, Rent Expenses and it
make a payment to the Current Liabilities account, Rent payable:

DATE ACCOUNTS AND EXPLANATION REF. THERE MUST BE

_______ x ________
31/12/2020 Rental Expenses xx 175,00
Rent Payable xx 175.00
Adjustment seat, worn part

El 15-01-2021 se registra el primer pago de alquiler, de la siguiente manera:

DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

_______ x ________
01/15/2021 Rent to be paid xx 175,00
Rental expenses xx 175,00
Bank or cash 350,00
Payment of 1 month of rent

The company's closing date is Tuesday, 12-31-2020. The weekly payroll of the workers
Payment is made on Fridays at a rate of Bs. 75.00 per day. This payment includes Saturday and Sunday.
Adjustment to the closing date is requested.
Analysis: the first thing to determine is how many days from that payroll correspond to the year 2020:

L M M J V S D L M M J V S D
23 24 25 26 27 28 29 30 31 1 2 3 4 5

It is supposed that the last payroll payment was made on December 27, 2020, and included Saturday the 28th.
and Sunday the 29th. So the 30th and 31st will be paid on January 3, 2021, and
correspond to expenses of the year 2020, which must be adjusted.
Adjustment: 2 days x 75.00 Bs/day = 150.00
DATE ACCOUNTS AND EXPLANATION REF. THERE MUST BE
_______ x ________
31/12/2020 Salary and wage expenses xx 150,00
Salaries and Wages Payable xx 150,00
Adjustment of 2 days of unpaid wages

On January 3, 2021, the weekly payroll is processed as follows:

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Basic Accounting II Topic 1: Adjustment Process in the Books
DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

_______ x ________
03/01/2021 Salaries and wages payable xx 150,00
Salaries and wages expenses xx 375,00
Bank or cash 525,00
Weekly payroll payment.

On 01-12-2020, the company receives a loan of Bs. 1,200.00 through the acceptance of a
promissory note, it generates interest at 36% per year, which will be paid along with the promissory note in 3
months. Adjustment is requested as of 31-12.

The money received was deposited in the bank on the date of issuance, as follows: this entry is only
for illustration, but no, it will be requested in the evaluation. The relevant entry is the adjustment.

DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

_______ x ________
03/01/2021 Bank xx 1,200.00
Payable effects xx 1,200.00
Payment to register a loan.

Analysis: the promissory note matures on 28-02-2020 and on that day, interest for 3 months must also be paid.
corresponding to the loan received. The time elapsed between the loan and the closing date is
1 month, so it must be reflected as expenses for the year 2020 for the month of interest accrued and unpaid to
end of the financial year.
31-12-2020 fecha de cierre
01-12-2020 loan date
30 0 0 30 days = 1 month
I=CxixT
I = 1,200.00 x (0.36/12) x 1m
I= 36.00 Bs
DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

_______ x ________
31/12/2021 Interest expenses xx 36.00
Interest payable xx 36,00
To adjust 1 month of accrued interest
pending payments.

The entry to be made on 28-02-2021, the date on which the company must pay the promissory note along with
the interests, are as follows:
DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

_______ x ________
28/02/2022 Accounts payable xx 1,200.00
Interest payable xx 36.00
Interest expenses xx 72.00
Box or bank 1.308,00
To record the payment of the promissory note and the
interests.
Conclusions: as it has been observed, this group of adjustments presents uniformly the
following characteristics:
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Basic Accounting II Topic 1: Adjustment Process in the Books
The charge (debit) for the adjustment is made to an expense account due to having
caused as of the closing date. This expense appears in the Income Statement and
subsequently it is removed during the closing process of the financial year.
The credit (entry) for the adjustment is made in a current liability account since
it is a short-term obligation. It is presented in the Statement of Financial Position.
The amount of the adjustment is what has been spent, caused, due or consumed as of the closing date.

b) Accrued Income Receivable:

They are revenues that have been earned but not collected as of the closing date.
Within this group we have: Rentals, Interests, Commissions. The adjustment entry is
making a charge or debit to an ASSET account and crediting or adding to an account of
INCOME.
EXAMPLES:
On 16-11-2020, the company rents out a property it owns for a monthly fee.
of a lease of BS. 400.00. The contract stipulates that the interest will be charged every
2 months overdue. Adjustment is requested as of 12-31-2020, the company's closing date.

Analysis: the company will collect its first rent payment on 01-16-2021. As of the closing date
It has been 1.5 months since the rental date of the premises. This period has already been earned by
the company and will only be charged on 01-15-2021.
31-12-2020 closing date
11-16-2020 rental date
15 1 0 adjustment 45 days = 1.5 month
Amount to adjust: 400.00 Bs. Monthly x 1.5 months = 600.00 Bs. Ö 400.00 x 45 / 30

The adjustment entry is recorded with a debit to the Current Assets account, in this case, Rent for
charge and a deposit is made to the Income account, called Rental Income.

Adjustment Seat
DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS
_______ x ________
31/12/2020 Alquileres por Cobrar xx 600.00
Income from rentals xx 600,00
Adjustment seat, earned part

On 15-01-2021, the company collects the 2 overdue months of rent as follows:

Collection Seat
DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS
_______ x ________
01/16/2021 Cash or Bank xx 800,00
Income from rentals xx 200,00
Rent Receivable 600.00
It is charged to the cash register or bank everything
amount, is credited to Income, the part
what is left to earn andActivola
accrued part recorded.
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Basic Accounting II Topic 1: Adjustment Process in the Books
On 31-10-2020, the company provides a loan of Bs.1,800.00 and issues
a promissory note, it generates interest at a rate of 42% per annum, which will be
charged together with the document in 3 months. An adjustment is requested as of 31-12-2020, closing date
of the company.

The entry made by the company on 31-10-2020 was as follows:

DATE ACCOUNTS AND EXPLANATION REF. SHOULD NEWS
_______ x ________
31/10/2021 Receivables xx 1,800.00
Bank xx 1.800,00
To register the granting of a
loan.

So by the closing date we found that this bill of exchange has generated two months of
interest that will be charged on 01-31-2021 and correspond to income from the year 2020
which will be charged in the following financial year.
31-12-2020 closing date
31-10-2020 loan date
0 2 0 adjustment 2 months = 60 days
I=CxixT
I = 1,800.00 x (0.42/12) x 2m
I= 126,00 Bs
Adjustment Seat
DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS
_______ x ________
12/31/2020 Accounts Receivable Interest xx 126.00
Interest income xx 126.00
Adjustment seat, gained part

On 31-01-2021, the company collects the bill of exchange along with the respective interest.
DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS
_______ x ________
01/31/2021 Cash or bank xx 1,989.00
Interest receivable xx 126,00
Interest income xx 63.00
Accounts receivable 1,800.00
To register the loan payment
.

Conclusions: as has been observed, this group of adjustments presents uniformly the
following characteristics:
The charge (debit) for the adjustment is made to a Current Asset account because
It represents a short-term right. It is presented in the Statement of Financial Position.
The credit (payment) for the adjustment is made in the respective income account given that
represents what the company has actually earned in that financial year. It
it appears in the Income Statement and its balance is eliminated in the period closing process
economic.
The amount of the adjustment is what has been earned and not collected as of the date.
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Basic Accounting II Topic 1: Adjustment Process in the Books
II. DEFERRED ITEMS
They arise from the commercial operations that the company has performed in a period.
determined and which have been canceled in advance or collected in advance, so that
it is deduced that they have been registered expecting to receive or provide the service in the future, which means
these will become expenses or income. Deferred items are classified as:
a) Prepaid Expenses
b) Revenues Collected in Advance

a) Prepaid Expenses
Advance payments made for expenses that will be incurred or for services.
to perceive in the future.
When the company incurs in this type of expenses, it acquires an asset or a right,
that, as it is used, it becomes an expense. At the end of the period, it must be analyzed.
if all the asset has been consumed in the period that ends, or if there is still part not spent,
then it is necessary to make the necessary Adjustment Entries, because, even if it has been
fully paid determined expense in a fiscal year, we will only consider as an outflow of the
economic exercise the consumed part, and the unconsumed part remains a right that is
presented in Current Assets under the prepaid criterion.
Within this group we generally have: Insurance, Rent, Interest, Advertising,
Desk Articles.
There are two ways to account for prepaid expenses:
A. Originally charging it to an asset account.
B. Originally charging it to an expense account.

For the example presented, both methods of accounting for paid expenses will be used.
in advance, which are mutually exclusive of each other.

Example: on 30-09-2020 the company acquires a fire insurance policy for Bs. 720.00
con cobertura de 1 año. Se pide ajuste al 31-12, fecha de cierre de la empresa.

Analysis: as of 09-30-2020, the company must record the acquisition of the policy and for this, it has two
options: as an asset or as an expense. The important thing is that the company is aware of the policy.
of prepaid registration in each of the following economic exercises.

Case A: when it is charged to an asset account

DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

_______ x ________
30/09/2020 Prepaid Insurance xx 720,00
Cash and Banks xx 720,00
To register the payment of an insurance...

As of 31-12-2020, the closing date, the account Prepaid Insurance shows in the ledger a
balance of Bs. 720.00. The coverage of the policy is for 12 months, so the time elapsed since
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Basic Accounting II Topic 1: Adjustment Process in the Books
the acquisition until closing represents the overdue portion of the policy, which must be carried to
expenses of the financial year.
December 31, 2020 closing date
09-30-2020 acquisition date of the policy
1 3 0 adjustment 3 months = 90 days
720.00 ----------12m
X -------------- 3m
X= 180,00
X= 180.00 represents the portion consumed and spent of the policy at closing.
Adjustment Seat
DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

_______ x ________
12/31/2020 Insurance Expenses xx 180.00
Prepaid Insurance xx 180.00
Adjustment seat, worn part.
Comentario:

The charge to the insurance expense account represents the portion of the policy that has expired as of the date.
of closure. It is presented in the Income Statement in the operating expenses section and
your balance is eliminated in the process of closing the financial year.
The credit to the account for prepaid insurance updates its balance by reducing it.
the expired months of the policy. It is presented in the balance sheet in the assets section
current.
The following illustration of the movements of the affected accounts in this example was made in
T accounts, but only for educational purposes, because it is advisable to do it in the general ledger. There
it is observed that the updated balance of the prepaid insurance account represents 9
policy months that will expire in the next financial year.
PAID INSURANCES EXPENSES OF
IN ADVANCE SURE
MUST NEWS MUST NEWS
720,00 180.00
180.00
540.00 180.00

Case B: when it is originally charged to an expense account.

Acquisition Seat
DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

_______ x ________
30/09/2020 Insurance Expenses xx 720,00
Cash in Hand and Banks xx 720,00
To register the payment of an insurance...

When analyzing the insurance expense account as of the closing date, it is observed that it has a balance.
of Bs. 720.00. Only 3 months have passed since the date of acquisition of the policy until the
closing date, therefore, the 9 months that did not expire, that were not spent, must be adjusted,
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Basic Accounting II Topic 1: Adjustment Process in the Books
in the current financial year and leave as an expense for the period the 3 months effectively
defeated.
720.00 ----------12m

X -------------- 9m
X= 540,00
X= 540.00 represents the unused or unspent part of the policy
Adjustment Entry
DATE ACCOUNTS AND EXPLANATION REF. SHOULD NEWS

_______ x ________
31/12/2020 Prepaid Insurance xx 540,00
Insurance Expenses xx 540,00
Adjustment seat for the part not
consumed.
Comment:

The charge to the account prepaid insurance represents the portion not due of the
policy as of the closing date. It is presented in the balance sheet in the assets section
current.
The insurance expense account receives a credit to reduce the 9 unpaid months and that
they had been fully recorded as expenses of the period. It is presented in the Statement
of Results in the operating expenses section and its balance is eliminated in the process of
close the financial exercise.
PAID INSURANCES EXPENSES OF
IN ADVANCE SURE
MUST NEWS MUST NEWS
540,00 720,00 540,00

540.00 180,00
Upon analyzing the ledger balances, it is observed that they match the ledger balances of the Case
A, even when the amount of the adjustment differs for each of them: in case A, the adjustment is for the
expired or consumed part and in Case B it is for the unexpired or unconsumed part.

b) Income Collected in Advance (Deferred Credits)

This group represents charges made in advance for services that will be provided in
the future. At the moment of receiving these charges, an obligation is created for the company that in the
as it provides the service that has been paid for in advance, it goes
transforming it into an income for herself.
At the closing date or the preparation date of the financial statements, the company must
analyze the balances of these accounts to understand what portions have been earned and reflected
como ingresos del ejercicio económico y qué parte permanece no ganada a ésa fecha y que por
assumption continues to be a liability. Within this group we generally have: Rentals,
Interests, Commissions.
There are two ways to account for advance payments received:
Case A: When it is originally credited to a liability account.
Case B: when it is originally credited to an income account.
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Basic Accounting II Topic 1: Adjustment Process in the Books

For the example presented, both methods of accounting for credits will be used.
deferred, which are mutually exclusive of one another.

Example: on 31-10-2020 the company rents out a premises it owns.

lease with a monthly fee of Bs.350.00, charging 3 months for rent
advance and 3 months deposit. Adjustment is requested as of 31-12-2020, the company's closing date.

Analysis: the time elapsed since the collection of rents and the closing date is 2
months; therefore, at the end of the exercise, the adjustment must show that 2 months have been gained
In the current period and next month, it will become income for the next fiscal year.
economic.
Case A: When originally credited to a liability account
Acquisition Seat
DATE ACCOUNTS AND EXPLANATION REF. SHOULD NEWS
_______ x ________
31/10/2020 Cash in Hand and Banks xx 2,100.00
Interest Charged in Advance xx 1,050.00
Deposit received as guarantee xx 1,050.00
To register the advance payment of 3
months.

As of 12-31-2020, the closing date of the company, the balance of the account for rents collected by
In advance, it shows a balance of Bs. 1,050.00, which reflects the 3 months charged.
in advance on 10-31-2020, of which 2 months have already turned into income for the current one
economic period.
Adjustment Seat
DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS
_______ x ________
31/12/2020 Rent Collected in Advance xx 700,00
Income from rentals xx 700,00
Adjustment seat part won or
accrued.

Comment:

The charge to the account of rents collected in advance represents the decrease in the
obligation of the company in 2 months of rents that have already been earned. Your balance
updated will show the rental month that is charged and that is due in the period
next economic. It is presented in the Statement of Financial Position, in the section of
current liabilities.
The credit goes to the rental income account as it represents 2 months earned.
the closing date. It is presented in the Income Statement and is eliminated during the process
of closing the current financial year.
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Basic Accounting II Topic 1: Adjustment Process in the Books
RENTALS
CHARGED BY INCOME FROM
ANTICIPATED RENTALS
SHOULD NEWS MUST NEWS
700,00 1.050,00 700,00

350,00 700,00

Case B: When it is originally credited to an income account.

Acquisition Seat
DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS
_______ x ________
31/10/2020 Cash in Hand and Banks xx 2,100.00
Income from rentals xx 1,050.00
Deposit received as a guarantee 1.050,00
To record the advance payment of...

At the closing date, the non-updated balance of the rental income account shows as income from
3 months of rent exercise, when the correct amount is 2 months. That is why the adjustment to be made must
decrease 1 month of rent from the income of this period and reflect the existing obligation for the next
economic exercise.

Adjustment Seat
DATE ACCOUNTS AND EXPLANATION REF. SHOULD NEWS
_______ x ________
31/12/2020 Ingresos por alquileres xx 350,00
Rent Collected in Advance xx 350,00
Adjustment seat, for the non-won part
or not accrued.

Comentario:
The charge to the account income from rentals for the month of rent that will be due next.
exercise of the account balance as of the closing date. The balance after the adjustment will show what
earned as of the closing date: 2 months. This amount is presented in the Statement of
Results are eliminated in the closing entries.
The credit to the account of rents collected in advance shows the company's obligation.
as of the closing date: 1 month of rent that will be due next month in the new term
economic. It is presented in the Statement of Financial Position.
RENTALS
COLLECTED BY INCOME FROM
ANTICIPATED RENTALS
must NEWS SHOULD NEWS
1.050,00
350,00
350,00 700,00
It is observed that the balances of the accounts prepaid rents and income for
rents match in both accounting methods, however, it is in the adjustment where
they differ; in case A, the adjustment is made for the gained or accrued part and in case B, the
The adjustment is made for the unearned portion.
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Contabilidad Básica II Tema 1: Proceso de Ajuste en los Libros
III. ESTIMATED GAMES

These are those through which, at the closing date, first of all, an expense is incorporated that
it was not registered, secondly, we regularized the balance of the valuation accounts of
assets that as of the closing date do not show their fair and exact value; to determine in third place,
the value according to the books of these current accounts of the company, in the financial year that
close.
Within this group are:
1. Estimation for Bad Debts
2. Depreciation of Property, Plant, and Equipment
3. Amortization of Intangibles

1. ESTIMATION FOR UNCOLLECTIBLE ACCOUNTS

Most of the sales made by a company come from credit operations.
backed by an invoice. This company's right is recorded in accounts receivable and
is presented in the Statement of Financial Position in the Current Assets section.

Sometimes, the company finds it impossible to collect certain invoices. The reasons that
The factors that make an invoice uncollectible are various and always beyond the company's control. For
example, the bankruptcy of a client, death, change of address, express manifestation of will
of not paying, among others. The principle of association between income and expenses establishes that to the
income obtained in a period is deducted from the expenses that helped to generate such
income, in such a way that the company can correctly determine the results of the fiscal year
economic. Based on the aforementioned principle, the company must record in the period
the possible losses resulting from the non-collection of some invoices, as this expense is seen
as an expense incurred by the company in order to increase its sales.

When the company sells on credit, it does not know which customer will fail to meet their obligation.
more, will only find out which account turned uncollectible after having exhausted all efforts of
collection, and this occurs certainly in an economic exercise different from the period in which it was made
the sale. This reason prevents the company from being able to directly affect accounts receivable.
a period when it records the loss from uncollectible accounts, hence it becomes necessary to employ
an evaluation account that offsets the total accounts receivable, so that they show
its estimated net worth in the Statement of Financial Position. This valuation account is known
with the name of Estimation for Uncollectible Accounts.

The estimate for bad debts is fundamentally based on professional judgment and on
the company's experience regarding accounts receivable, of course, as it is a matter of
a estimate will rarely match the actual losses that the company may incur due to
concept of bad debts, in any case it is always possible to carry out the corresponding
correction in the amount of the estimate.

METHODS TO ADJUST THE ESTIMATION OF UNCOLLECTIBLE ACCOUNTS.

[Link] el saldo de la Estimación con base en un porcentaje del Saldo de las Cuentas por Cobrar:

Under this premise, the predetermined percentage is applied to the balance of Accounts Receivable and
Considering the result, the balance of the allowance for Doubtful Accounts is adjusted. Must
Please note that Accounts Receivable from employees and Advances will not be taken into account.
to Suppliers, nor Accounts receivable from asset sales, nor accounts receivable from third parties; only
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Basic Accounting II Topic 1: Adjustment Process in the Books
accounts receivable from merchandise sales or services will be taken into account
provided if it is a service company.

Example:
Case A: As of 12/31/2020, the following accounts showed the balances:
Accounts Receivable Bs. 110,000.00
Estimation for Bad Debts Bs. ---- 0 ----
It was estimated that 2% of Accounts Receivable would be uncollectible.
Solution.
Accounts Receivable as of 12/31/2020 Bs. 110.000,00
% of estimation for uncollectibility 2%
Estimation for Uncollectibility Bs. 2.200,00

Adjustment Seat
DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

31/12/2020 _______ x ________ xx

Losses for Doubtful Accounts xx 2,200.00
Estimation for Bad Debts 2,200.00
To adjust the provision balance

Analysis:
The charge is made to an expense account called loss for uncollectible accounts, to keep track
the expenses of the exercise the possible loss to be obtained, resulting from the accounts that turned out
unrecoverable. This expense is presented in the Income Statement and is eliminated during the process of
closing of the financial year.
The credit is received by the valuation account called allowance for doubtful accounts, which
is presented in the Statement of Financial Position in the current assets section, decreasing the
accounts receivable.

Example:
Case B: As of 12/31/2020, the following accounts showed the balances:
Accounts Receivable Bs. 110,000.00
Estimation for Bad Debts Bs. 1,300.00

It was estimated that 5% of Accounts Receivable would be uncollectible.

Solution.
Accounts Receivable as of 12/31/2020 Bs. 110.000,00
% of estimated uncollectibility 2%
Allowance for Uncollectibility necessary 2,200.00
Less: Dragged estimate 1,300.00
Amount to Adjust 900.00
Adjustment Seat
DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

31/12/2020 _______ x ________ Xx

Losses for Bad Debts xx 2,200.00
Estimation for Bad Debts 900.00
Capital or UND 1.300,00
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Basic Accounting II Topic 1: Adjustment Process in the Books
To adjust the balance of the provision

Analysis:
The charge is made to an expense account called loss for uncollectible accounts, to carry out
to the expenses of the exercise, the possible loss to be incurred, resulting from the accounts that resulted
uncollectible.
The credit of 900.00 is recorded in the allowance for doubtful accounts, thus the
the balance of the estimate reaches the total estimated for the current fiscal year
The credit for 1,300.00 is received by an equity account called capital, if it is a
sole proprietorship, or in the Retained Earnings (RE) account, if working with a company
anonymous, in which case the exercise will specify what type of company it is. This credit is considered a
increase in equity because it indicates that there was an overestimation of the period’s estimate
previous

Example:
Case C: As of 12/31/2020, the following accounts had the following balances:
Accounts Receivable Bs. 110,000.00
Estimation for Bad Debts 2,500.00
It was estimated that 2% of Accounts Receivable would be uncollectible.
Solution.
Accounts Receivable as of 12/31/2020 Bs. 110,000.00
percentage of estimated uncollectibility 2%
Estimation for Bad Debt Necessary 2,200.00
Less: Dragged estimate 2.500,00
Amount to Adjust 300.00
Adjustment Seat
DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

31/12/2020 _______ x ________ Xx

Losses for Bad Debts xx 2.200,00
Estimation for Bad Debts 300,00
Capital or UND 2,500.00
To adjust the balance of the provision

Analysis:
A charge is made for bad debts to account for the possible expense of the fiscal year.
loss to be obtained, resulting from the accounts that became uncollectible.
A charge of 300.00 in the allowance account for uncollectible accounts indicates that there was a
decrease in it, resulting from the carried balance being greater than the necessary estimate of the
period.
The credit for the 2500.00 is received by an equity account, called capital, if it is a
sole proprietorship, or in the Undistributed Earnings (UND) account, if working with a company
anonymous, in which case the exercise will specify what type of company it is. This credit is considered a
increase in equity because it indicates that there was an overestimation of the estimated period
previous
This analysis applies to the following methods listed below:

[Link] receivable, taking into account their age:

 15
Basic Accounting II Topic 1: Adjustment Process in the Books
This method is based on an analysis and study of all accounts receivable according to their date.
of expiration. The percentage to be applied will be higher as the invoice has been overdue longer.
of overdue, because there is a higher probability that it will be uncollectible.

Example:
As of 12/31/2020, Accounts Receivable had the following balances:

Expiration (days) Balance Percentage Provision

Not expired 73.000,00 2% 1.460,00
1 - 30 3,000.00 3% 90.00
31 - 60 2,000.00 5% 100.00
61 - 90 1,000.00 7% 70.00
91 - more 1,000.00 10% 100.00
Total 80,000.00 1.820,00

Case A:
Estimation for Uncollectible Accounts Bs. ---- 0 ----
Adjustment Seat
DATE ACCOUNTS AND EXPLANATION REF. Must NEWS

31/12/2020 _______ x ________ Xx

Losses for Bad Debts xx 1.820,00
Estimation/Bads Debts 1,820.00
To adjust the provision balance

Example:
Case B:
Necessary estimation for uncollectibility 1.820,00
Less: Dragged estimate 550,00
Amount to Adjust 1,270.00

Adjustment Seat
DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

31/12/2020 ______ x ________ xx

Losses for Bad Debts xx 1.820,00
Estimation/Bad Debts 1,270.00
Capital or UND 550,00
To adjust the balance of the provision

Example:
Case C:
Estimation for Uncollectibility needed 1,820.00
Less: Dragged estimate 2.050,00
Amount to Adjust 230,00
 16
Basic Accounting II Topic 1: Adjustment Process in the Books

Adjustment Seat
DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

31/12/2020 _______ x ________ xx

Losses for Bad Debts xx 1.820,00
Estimation/Bad Debts 230.00
Capital or UND 2,050.00
To adjust the balance of the provision

3. Adjust the balance of the Estimate based on a percentage of the sales balance of
goods on credit
It consists of estimating the expense for uncollectible accounts based on a percentage of
credit sales

EXAMPLE:
As of 31/12/2020, the following accounts had the following balances:
Credit Sales Bs. 83.230,20
Returns on Sales 1,325.50
Sales Discounts ( 980.35
Net sales on credit 80,924.35
It was estimated that 1% of net credit sales for the period would be uncollectible.

SOLUCIÓN:
Net credit sales as of 12/31/2020 Bs. 80.924,35
% of estimation for uncollectibility 1%
Estimation for Uncollectibility Bs. 809.24
Adjustment Seat
DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

31/12/2020 _______ x ________ xx

Losses for Bad Debts xx 809.24
Estimation/Bad Debts 809.24
To adjust the balance of the provision

2. Depreciation of Properties, Plant and Equipment.

Property, Plant and Equipment are those assets with more or less characteristics
permanents in terms of durability, that the company has in order to use them in its
normal operations and whose intention is not to sell them. Among the properties, Plant and
Equipment, we have: Land (not depreciated), Buildings, Machinery, Vehicles, Furniture,
Office Equipment.

Depreciation is related to the loss of value that certain Fixed Assets experience due to
use of the same in the company's current operations, or due to age or obsolescence
of the same, and consists of the systematic allocation of the cost of the asset to expenses of the period
economic during the time in which it is estimated to obtain benefits from them.
 17
Basic Accounting II Topic 1: Adjustment Process in the Books

Elements that intervene in depreciation:

1. Cost of the Asset: includes the net price paid for it, plus customs expenses, freight,
insurance, installation costs, and any other expenses necessary for the implementation
functioning of the asset.
2. Estimated Useful Life of the Asset: it is an estimated value, which represents the time or quantity
what will be the basis for the allocation of the fixed asset cost to expenses in the different
periods in which it is estimated to obtain benefits from the use of such assets. The useful life can
expressed in years, units of production numbers, hours of work numbers
the machine and kilometers traveled.
3. Salvage Value: represents the estimated value that the fixed asset will have when it
depreciate. This value is not always assigned to assets, in that case, when
when the useful life of the asset ends, its book value will be equal to zero.
[Link] according to Books: is given by the cost of the asset minus its respective depreciation.
accumulated.
Value According to Books = Cost - Accumulated Depreciation
5. Depreciable Value: It is the difference between the Cost value and the Residual value, that is,
part of the total cost of the asset that is subject to depreciation.

Depreciation Methods
• Straight line
• Decreasing digits
• Units produced
• Hours worked

In the subject Basic Accounting II, only the Straight-Line method will be covered, this method
consists of the distribution of the cost of the asset over the number of years of its probable useful life in
equal parts. The annual depreciation rate is determined by the following formula:

Annual Depreciation = Cost - Salvage Value

Useful Life
Example:
As of 30/06/2020, we acquired furniture for Bs. 5,000.00 which we decided to depreciate over 8 years.
by the straight-line method; the furniture has a salvage value of Bs.400.00. Carry out the
record of the acquisition of the asset and adjustment entry at the closing date 31/12/2020.
Analysis: the recording of furniture purchases only requires a charge to the Furniture account and
payment to banks.

DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

31/06/2020 ---------x----------- xx
Furniture xx 5,000.00
Banks 5.000,00
To register the purchase of furniture.
 18
Basic Accounting II Topic 1: Adjustment Process in the Books
The annual depreciation rate is calculated as follows:
Annual depreciation = 5,000.00 - 400.00 = Bs. 575.00 annually

8 years
The company must determine the time elapsed from the acquisition of the asset until the date.
of the company's closure to record the corresponding expense for depreciation.
It is observed that the elapsed time is 6 months, so a rule of three is applied.
to know the amount corresponding to the months of use.
31-12-2020 closing date
30-06-2020 acquisition date
0 6 0 adjustment 6 months = 180 days

575.00 _______ 360 days

x _______ 180 days

X = 287,50

Adjustment Seat

DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

_______ x ________
31/12/2020 Depreciation of Furniture xx 287.50
Accumulated Depreciation Furniture xx 287,50
To adjust the annual depreciation
Comentario:

The charge is made to the furniture depreciation account since it represents the part
depreciation corresponding to expenses of the period. It is presented in the Income Statement
and it is eliminated in the process of closing the financial year.
The credit is received by the respective account of Accumulated Depreciation Furniture, the balance of
it will increase year after year as it accumulates the depreciation suffered by the asset.
present in the Statement of Financial Position in the section of Property, Plant, and Equipment
decreasing the furniture, as follows:
Furniture 5,000.00
Less: Accumulated Depreciation Furniture (287,50)
4,712.50
What it means is that the Net Value or Book Value of the Furniture as of 12/31/2020
It is Bs. 4,712.50.

3. Amortization of Intangibles
The Intangibles represent the company's contractual legal rights, without presence.
physical, backed by documents that grant their owners exclusive advantages or privileges.
These assets are recorded at acquisition cost. This cost is transferred to expenses for the period.
economic through amortization.
 19
Basic Accounting II Topic 1: Adjustment Process in the Books
Amortization consists of the systematic distribution of the asset cost over the number of
years in which it is estimated to obtain benefits from the asset, that is, within its probable useful life, among the most
common ones we have: Patent of Invention, Trademark, Copyright, Added Value, etc.

1) Patent of Invention: it is a right granted by the State, which provides the inventor
of machine, procedure, etc., the exclusive right to manufacture and sell the patented good
for a period of time determined by the Industrial Property Law.

Copyright: this right granted by the State gives its owner the
exclusive right to publish or sell a literary, musical, film, pictorial, software work
etc., for a period that in Venezuela exceeds 40 years after the death of the author.

3) Trademarks: this asset is represented by a figure, name, symbol that

They identify a product or a company. In Venezuela, the trademark has a
duration of 15 years, subject to renewal for successive periods of 15 years. The
fact that this asset cannot be continuously renewed provides it with the
characteristic of having an indefinite lifespan, which does not prevent its depreciation over time that
the company expects to gain benefit from it.

4) Goodwill: Commercial credit, point, site, or name. It originates from the advantages provided by the
business its strategic location, the high prestige achieved by the company given the good
service provided, which allows to maintain a high volume of sales and portfolio
clients superior to the competition, which increases the value of the company.

5) Franchise: it is defined as a system of cooperation between different companies, but

bound by a contract, under which one of them, the franchisor grants to the other (or
otras), denominadas franquiciadas, a cambio de unas contraprestaciones (pagos), el
right to exploit a brand and/or a commercial formula embodied in signs
badges, assuring them at the same time of technical assistance and regular services
necessary to facilitate such exploitation.

The method generally used to amortize intangible assets is the Straight Line method.
which consists of dividing the Cost of the Asset by the estimated Useful Life.

Active
Amortización =
Useful Life
Example:
On 01/01/2020, we acquired a Patent for Invention for Bs.6,000.00, which we decided to amortize in
5 years. Make the adjusting entry as of the closing date 31/12/2020:
Analysis: the cost of the patent must be distributed over 5 years. As of 12-31-2020, it
will register the depreciation resulting from applying the formula as an expense, since the asset was
acquired at the beginning of the year, in case the acquisition date is different, it must be registered
equivalent to that period.
 20
Basic Accounting II Topic 1: Adjustment Process in the Books
Amortización = 6.000.000 = Bs. 1.200.000 anual
5 years
Adjustment Seat

DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

_______ x ________
31/12/2020 Amortization of Patent of Invention xx 600,000
Patent of Invention xx 600,000
To record the amortization...

Comentarios:

The charge is made in an expense account called amortization Patent of Invention

and represents the amortized amount of the asset in that period. This amount is presented in the
Income Statement and its balance is eliminated during the process of closing the fiscal year.
economic.
The credit is received by the asset account Invention Patent, so that its balance
adjusted shows what remains to be amortized.

ERRORS AND OMISSIONS

a) Errors:
Example:
On October 8, 2020, a purchase of Office Supplies was recorded for Bs.100,000 as
a purchase of goods.
Solution:
Original Seat

DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

_______ x ________
08/10/2020 Compras xx 100,000
Cash in Hand and Banks xx 100,000
To register cash purchases

Adjustment Seat

DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

_______ x ________
31/12/2020 Office Supplies xx 100,000
Purchases xx 100,000
To reverse the entry, due to having been charged
erroneously to the purchase account a
acquisition of office supplies.
 21
Basic Accounting II Topic 1: Adjustment Process in the Books
b) Omissions:

Example:
On 30/06/2020, furniture was sold for Bs.900,000, which had been acquired on
01/01/2020 for a cost of Bs.800,000, with a useful life of 10 years.
Solution:
Original Seat

DATE ACCOUNTS AND EXPLANATION REF. MUST NEWS

_______ x ________
31/12/2020 Depreciación Mobiliario xx 40.000
Accumulated Depreciation Furniture xx 40.000
To record depreciation...
_______ x ________
Banks xx 900,000
Accumulated Depreciation Furniture xx 120,000
Furniture xx 800.000
Profit from Furniture Sales xx 220.000
To register the sale of furniture with
profit made on 30/06/2020