Understanding Adjusting Entries in Financial Statements

School: Southern New Hampshire University - Course: ACC 610 - Subject: Accounting

Adjusting Entries and Memos Student's Name Institutional Affiliation

ACC 610 MILESTONE THREE2 Adjusting Entries and Memos Adjusting Entries It is necessary for companies to make adjusting entries to their journals just before issuing their financial statements (Averkamp, 2019). Amazon also makes adjusting entries just like many other companies, for PPE depreciation and repays marketable securities. Depreciation Method Amazon applies the depreciation straight-line method when doing calculations on depreciation for its plant, property, and equipment. The straight-line technique, allows for the allocation of the same expense of depreciation each duration during the useful life of the asset, up to the level where the salvage value remains (Kennon, 2017). The calculation of straight-line depreciation can be as follows: Straight-line depreciation = (Cost of asset - Value of residual) / approximated useful life According to Amazon 2019, the recording of depreciation is done based on a straight-line over the approximated assets useful. The straight-line method is easier to implement; hence Amazon must use it. Again, this method lowers profit by a similar amount annually since the expense occurs during the same year, allowing companies to have the benefit of knowing precisely their expectation on losses to depreciation each year (Kennon, 2017). Adjusting Entries Again, amazon also reports unearned revenue as another adjusting entry. According to Amazon Web Services, unearned revenue refers to payment in advance of services getting offered (Amazon, 2019). Also, the company reveals that most of their unearned revenue gets attributed to Amazon repayments of prime membership and AWS (Amazon, 2019). Amazon has to adjust its payments received in advance on the balance sheet as it performs its obligations,