Summary Accounting - Adjustments

YEAR END ADJUSTMENTS:
CAPITALIZED VS NON – CAPITALIZD INTEREST ON LOANS:
 Capitalized interest
 The capital sum = the total loan + interest
 Interest is added to the loan
 Two accounts affected
- Loan (credit)
- Interest on loan (debit)
Loan
20.1
Mar 01 Bank 100 000
20.2
Feb 28 Interest on loan 12 000

Interest on loan
20.
2
Feb 28 Loan 12 000



 Non – capitalized
 The loan and interest id recorded separately
 The interest will be treated as accrued income or accrued expense
 Accounts affected
- Loan (stays the same)
- Interest on loan (credited)
- Accrued expense/ income (debit)
Loan
20.1
Mar 1 Bank 100 000



Accrued expenses
20.2
Feb 28 Interest on loan 12 000



Interest on loan
20.
2
Feb 28 Accrued expense 12 000

, ACCRUED EXPENSES:
 Liability ( credit )
 Expenses still owing at year end
 You paid less than what you were supposed to
 Two accounts affected
- Expense (debited)
- Accrued expenses (credited)
 E.g. rent expense, water and electricity, insurance, interest, telephone,
advertising, ext.




PREPAID EXPENSES:
 Asset ( debited )
 Expenses that already been paid for in the current financial year but only apply
for the following financial year.
 You paid more than what you were supposed to.
 Two accounts affected
- Expense (credited)
- Prepaid expense (debited)
 Same expenses as previously mentioned.




ACCRUED INCOME:
 Asset ( debited )
 Income that is outstanding for the current financial year.
 The business received less than what it was supposed to.
 The money is still owing to the business that is why it is an asset.
 Two accounts affected
- Income (credited)
- Accrued income (debited)
 Rent income, interest on fixed deposits ext.




INCOME RECEIVED IN ADVANCE:
 Liability ( credited )
 The business received income that is only applicable for the following financial
year
 The business still owes the service or good to the customer therefor making it a
liability.
 Two accounts affected