Types of balance day adjustments

Examples of balance day adjustments are shown in the table below:

Year-end information made available Type of adjustment required Type of accounts affected Adjusting journal entry
Interest of $250 on a term deposit was earned at year-end, although collection of the interest was not due until the following year. Accrual adjustment - Accrued Income (Income Receivable)
  • Asset to be increased
  • Revenue (income) to be increased
  • There is no GST implication on Interest Revenue on a term deposit.
Income Receivable Dr $250
Interest Revenue Cr $250
At the end of the year, wages payable of $2,600 had not been recorded or paid. Accrual adjustment - Accrued Expense (Expense Payable)
  • Expense to be increased
  • Liability to be increased
  • There is no GST implication on wages.
Wages Expense Dr $2,600
Wages Payable Cr $2,600
The unadjusted Prepaid Insurance balance (GST exclusive) at year end was $4,000. It was determined that $1,800 of the prepaid insurance balance had expired for the accounting period just ended. Deferral adjustment – Prepaid Expense
(Prepayment)
  • Asset to be decreased
  • Expense to be increased
  • There is no GST implication on the Prepaid Insurance adjustment because the GST implication on this item would have been accounted for the payment of prepaid insurance was initially recorded.
Insurance Expense Dr $1,800
Prepaid Insurance Cr $1,800
At the end of the year, $2,700 (GST inclusive) was collected in cash for service revenue to be provided in the next accounting period. Deferral adjustment – Income Received in Advance (Unearned Revenues)
  • Asset to be increased
  • Liability to be increased
  • GST Payable (Liability) to be increased
  • The GST implication of receiving cash for unearned revenues has to be accounted in this period because the GST has been collected in cash and is therefore payable to the ATO.
Cash Asset Dr $2,700
Income in Advance Cr $2,400
GST Payable Cr $300
The annual depreciation on equipment for the accounting period just ended was estimated to $4,500. Estimation of Depreciation
  • Expense to be increased
  • Asset (Contra) to be increased
  • There is no GST implication on the depreciation estimate adjustment because the assets are recorded at GST exclusive cost
Depreciation on Equipment Dr $4,500
Accumulated Depreciation on Equipment Cr $4,500
An amount of $360 (GST inclusive) for payment of Electricity expense was wrongly recorded as Equipment asset. Correction of error
  • Expense to be increased
  • Asset to be decreased
  • There is no need to make a correcting entry for GST as the $40 GST Receivable (amount that can be claimed back from the ATO) will have been correctly debited. The credit entry made to the Cash account will not need correcting either.
Electricity Expense Dr $320
Equipment Asset Cr $320
At the end of the year a stock take of the stationery revealed that $500 was still on hand out of stationery purchased for $4,200 during the year.

There was $300 of Stationery on hand at the beginning of the year.
Stock of unused consumables
  • Asset to be increased
  • Expense to be decreased
  • There is no GST implication here as the GST will have been accounted for when purchased.
Cost of Stationery used Dr $300
Stock of Stationery (beginning) Cr $300

Cost of Stationery used Dr $4,200
Purchases of Stationery Cr $4,200

Stock of Stationery (closing) Dr $500
Cost of Stationery used Cr $500

AASB 119 Employee Benefits raises complex issues regarding employee benefits including annual leave and long service leave. Additional balance day considerations may need to be given to providing for annual leave and long service leave if not automatically calculated within the payroll system. For further detail on AASB119 go to www.aasb.gov.au and look at the Table of Standards.