Adjusting Entries and Accrual Accounting
What this domain tests
Adjusting entries test accrual accounting: prepaid and accrued items, depreciation, allowance for doubtful accounts, inventory, and consumption tax. Grade 3 gives a fiscal year-end and a list of 決算整理事項; you must compute the correct period's amount and record the asset or liability.
Core rules
- Revenues and expenses are recognized when earned or incurred, not when cash moves.
- 前払費用: cash paid before the expense is incurred, so an asset remains. 未払費用: expense incurred but unpaid, so a liability.
- 未収収益: revenue earned but not collected, an asset. 前受収益: cash received before revenue is earned, a liability.
- 消耗品: unused supplies are an asset; used supplies are an expense.
- 現金過不足 is cleared at year-end to 雑益 or 雑損 after investigation.
- 再振替仕訳 reverses an accrual or deferral at the start of the next year when the original entry was reversed.
Worked example
An insurance premium of ¥240,000 is paid on April 1 for two years; the fiscal year ends March 31. One year of coverage has expired, so ¥120,000 is expense and ¥120,000 is prepaid. Entry: 前払費用 120,000 / 保険料 120,000. Next year's opening reversal, if used: 保険料 120,000 / 前払費用 120,000. For accrued interest, a ¥1,000,000 loan at 3% taken on October 1 accrues three months by December 31: 1,000,000 × 3% × 3/12 = ¥7,500. Entry: 支払利息 7,500 / 未払利息 7,500.
Traps
- Counting the wrong number of months.
- Treating 前払費用 as an expense instead of an asset.
- Confusing 未収収益 with 売掛金.
- Forgetting the reversing entry when the problem uses 再振替.
- Adjusting 資本金 for accrued items.