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2
Adjusting Entries
Learning Objectives:
At the end of the chapter, learners should be able
to:
1. Enuemrate the common end of the period
adjustments;
2. Prepare adjusting entries
4
Review of the Accounting Cycle
5
Definition
6
Adjusting Entries
7
Adjusting Entries
8
Adjusting Entries
9
Adjusting Entries
10
Accruals
Income already earned but
not yet collected.
Accrued Income
Expenses already incurred
but not yet paid.
Accrued Expense
11
Accrued Income
ABC Company received a 12%,
Php100,000.00 one year note on
April 1, 2020. ABC uses a
calendar year period. The
principal and interest on note are
due on April 1, 2021.
Date
Particular
F
Debit
2020 Interest Receivable
9,000.00
Dec. 31
Interest Income
To accrue interest from April 1 to Dec. 31 (Php10,000.00
x 12% x 9/12)
Credit
9,000.00
12
Accrued Income
Angara Law Office received
Php20,000.00, 10%, 3-month
note from a client on Nov. 16,
2020.
Date
Particular
F
2020 Interest Receivable
Dec. 31
Interest Income
To accrue interest from Nov. 16 to Dec. 31
(Php20,000.00 x 10% x 45/360)
Debit
250.00
Credit
250.00
13
Accrued Income
Topline Condominium Inc. leased one
of their units to Diamond Corporation
for Php15,000.00 per month. Diamond
started to occupy the unit on Dec. 1.
No payment was made by Diamond as
at Dec. 31.
Date
Particular
F
2020 Rent Receivable
Dec. 31
Rent Income
To accrue rent income for the month of Dec.
Debit
15,000.00
Credit
15,000.00
14
Accrued Expense
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Accrued Expense
Vienna Company issued a 6month 10% promisory note to G
Company on October 1, 2020.
The amount of the note is
Php60,000.00
Date
Particular
F
Debit
2020 Interest Expense
1,500.00
Dec. 31
Interest Payable
To accrue interest on note issued from Oct 1
to Dec. 31 (Php60,000.00 x 10% x 3/12)
Credit
1,500.00
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Accrued Expense
JCP Tutorial Services hired the
services of additional tutors during
the last week of December.
Payments for these tutors
amounting to Php25,000.00 will be
made on the first week of January
next year.
Date
Particular
2020 Salaries Expense
Dec. 31
Salaries Payable
To record accrued salaries
F
Debit
25,000.00
Credit
25,000.00
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Depreciation Expense
18
Depreciation Expense
19
Depreciation Expense
20
Depreciation Expense
21
Depreciation Expense
Christian Company owns a building
which was constructed five years
ago. Total cost of the building was
Php1,500,000.00. The building has
a salvage value of Php50,000.00
and estimated useful life of 25
years.
Date
Particular
2020 Depreciation Expense - Building
Dec. 31
Accumulated Depreciation – Building
F
To record depreciation for the year.
Debit
58,000.00
Credit
58,000.00
22
Depreciation Expense
Jed Company purchased a delivery
truck three years ago at a cost of
Php1,000,000.00. The truck has
estimated salvage value of
Php75,000.00 and has an
estimated useful life of 10 years.
Date
Particular
F
2020 Depreciation Expense – Delivery Truck
Dec. 31 Accumulated Depreciation – Del. Truck
To record depreciation for the year.
Debit
92,500.00
Credit
92,500.00
23
Depreciation Expense
Jessie Merchandising owns a
machinery costing Php100,000.00
which the company acquired on
March 1 of the current year. The
machinery will have a salvage
value of Php10,000.00 after its
useful life of five years.
Date
Particular
F
Debit
2020 Depreciation Expense – Machinery
15,000.00
Dec. 31 Accumulated Depreciation – Machinery
To record depreciation for the year. (100,00010000/5) = 18,000 18000 x 10/12 (March 1 – Dec. )
Credit
15,000.00
24
Depreciation Expense
Char Company purchased office
tables and chairs costing
Php20,000.00 on July 31 of the
current year. It was estimated that
these assets will have a salvage
value of Php2,000.00 after its
estimated useful life of five years.
Date
Particular
F
Debit
2020 Depreciation Expense – Furniture
1,500.00
Dec. 31 Accumulated Depreciation – Furniture
To record depreciation for the year.
(Php20,000-2000/5) = 3600 x 5/12 (Aug 1 – Dec 31)
Credit
1,500.00
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Bad Debts
Expense
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Allowance
for
Doubtful
Accounts
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Bad Debts Expense
E and E Co. has a total
accounts receivable of
Php20,000.00 on December 31,
2020 before any adjustments.
Of the total amount, it was
estimated that Php1,500.00 is
doubtful of collection.
Date
Particular
2020 Bad Debts Expense
Allowance for Doubtful Accounts
Dec. 31
F
Debit
1,500.00
To record bad debts expense for the year.
Credit
1,500.00
28
Bad Debts Expense
On December 31, current year, the
following are the the unadjusted ledger
balance of
Accounts Receivable, Php180,000.00
Allowance for bad debts,
Php5,500.00
Compute the bad debts expense for the
year if Allowance for Bad Debts is to be
increased by 10%
Date
Particular
F
Debit
2020 Bad Debts Expense
18,000.00
Allowance for Bad Debts
Dec. 31
To record bad debts expense for the year.
(Php180,000.00 x 10%) because of INCREASE BY
Credit
18,000.00
29
Bad Debts Expense
On December 31, current year, the
following are the the unadjusted ledger
balance of
Accounts Receivable, Php180,000.00
Allowance for bad debts,
Php5,500.00
Compute the bad debts expense for the
year if Allowance for Bad Debts is to be
increased to 10%
Date
Particular
F
Debit
2020 Bad Debts Expense
12,500.00
Allowance for Bad Debts
Dec. 31
To record bad debts expense for the year.
(Php180,000.00 x 10%) – (Php5,500.00)
Credit
12,500.00
30
Bad Debts Expense
The ledger balance for accounts
receivable of Raffy Company showed a
balance of Php94,000.00 at Dec. 31.
The company estimated that 12% of
outstanding customers’ account will be
doubtful of collection. The Allowance for
doubtful accounts showed a credit
balance of Php9,150.00 before
adjustments.
Date
Particular
2020 Bad Debts Expense
Allowance for Doubtful Accounts
Dec. 31
F
Debit
2,130.00
To record bad debts expense for the year.
Credit
2,130.00
31
Prepaid Expense
32
Prepaid Expense – Methods
of Recording
Asset Method –
an asset account
is debited upon
the payment of
expense.
Expense Method –
an expense account
is debited upon the
payment of
expense.
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Prepaid Expense – Methods of
Recording – Asset Method
On Sept 1, 2020, Angara Law Office paid Php4,500.00 for six
month rent of a special printer used in the office
Sept. 1, 2020 Prepaid Rent Expense
Cash
4,500.00
4,500.00
Rental on printer from Sept.1 to Feb. 28
Dec. 31
Rent Expense
3,000.00
Prepaid Rent Expense
To set-used part of the prepaid rent
(Php4,500.00 x 4/6) Sept 1 to Dec. 31
3,000.00
34
Prepaid Expense – Methods of
Recording – Asset Method
On August 1, 2020, Angara Law Office paid Php120,000.00 for
insurance premium covering for one year.
Aug. 1, 2020
Prepaid Insurance Expense
Cash
120,000.00
120,000.00
Insurance premium from Aug. 1 2020 to July 31, 2021
Dec. 31, 2020
Insurance Expense
Prepaid Insurance Expense
To set-used part of the prepaid insurance
(Php120,000.00 x 5/12) Aug. 1 to Dec 31
50,000.00
50,000.00
35
Prepaid Expense – Methods of
Recording – Asset Method
Angara Law Office paid a one-year advertising contracts
amounting to Php8,400.00 on June 1, 2020.
June 1, 2020 Prepaid Advertising Expense
8,400.00
Cash
Advertising from June 1 to May 31
Dec. 31, 2020
Advertising Expense
8,400.00
4,900.00
Prepaid Advertising Expense
To set up used part of the prepaid advertising
(Php8,400.00 x 7/12 ) June 1 to Dec. 31
4,900.00
36
Prepaid Expense – Methods of
Recording – Expense Method
On Sept 1, 2020, Angara Law Office paid Php4,500.00 for six
month rent of a special printer used in the office
Sept. 1, 2020 Rent Expense
Cash
4,500.00
4,500.00
Rental on printer from Sept.1 to Feb. 28
Dec. 31
Prepaid Rent Expense
1,500.00
Rent Expense
To set-unused part of the rent expense
(Php4,500.00 x 2/6 Jan. 1 –Feb. 28)
1,500.00
37
Prepaid Expense – Methods of
Recording – Expense Method
On August 1, 2020, Angara Law Office paid Php120,000.00 for
insurance premium covering for one year.
Aug. 1, 2020
Insurance Expense
Cash
120,000.00
120,000.00
Insurance premium from Aug. 1 2020 to July 31, 2021
Dec. 31,
2020
Prepaid Insurance Expense
70,000.00
Insurance Expense
To set-unused part of the insurance
expense (Php120,000 x7/12 Jan. 1 to July
31 2021)
70,000.00
38
Prepaid Expense – Methods of
Recording – Expense Method
Angara Law Office paid a one-year advertising contracts
amounting to Php8,400.00 on June 1, 2020.
June 1, 2020 Advertising Expense
8,400.00
Cash
Advertising from June 1 to May 31
Dec. 31,
2020
8,400.00
Prepaid Advertising Expense
3,500.00
Advertising Expense
3,500.00
To set up unused part of the advertising expense
(Php8,400.00 x 5/12 Jan 1 – May 31 2021)
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Unearned Revenue
40
Unearned Income – Methods
of Recording
Liability Method –
a liability account
is credited upon
the receipt of
cash.
Income Method –
an income account
is credited upon the
receipt of cash.
41
Unearned Income – Methods of
Recording – Liability Method
Angara Law Office received from a lessor, on May 1, 2020,
Php6,000.00 for a one year rent of a space owned by Angara.
May 1, 2020 Cash
6,000.00
Unearned Rent Income
6,000.00
Rental payment received covering May 1 -April 30
Dec. 31,
2020
Unearned Rent Income
4,000.00
Rent Income
4,000.00
To set-up earned portion of the unearned income
(Php6,000.00 x 8/12 ) May 1 to Dec. 31 2020
42
Unearned Income – Methods of
Recording – Liability Method
Vienna Company collected a one-year advertising contract from
Emily Enterprise amounting to Php7,200.00 on June 1, 2020.
June 1, 2020 Cash
7,200.00
Unearned Advertising Income
7,200.00
Advertising income collected (June 1 to May 31)
Dec. 31,
2020
Unearned Advertising
Income
4,200.00
Advertising Income
4,200.00
To set-up earned portion of the unearned advertising
(Php7,200.00 x 7/12) June 1 to Dec. 31, 2020
43
Unearned Income – Methods of
Recording – Liability Method
Char Trading received interest payment from Mr. A, a client on
October 1, 2020 amouting to Php4,000.00. This interest
payment is good for 8 months starting Oct. 1, 2020.
Oct. 1, 2020 Cash
4,000.00
Unearned Interest Income
4,000.00
Interest payment received covering Oct. 1 to May 31
Dec. 31,
2020
Unearned Interest Income
1,500.00
Interest Income
1,500.00
To set-up earned portion of the unearned interest
income (Php4,000.00 x 3/8) Oct 1 to Dec. 31, 2020
44
Unearned Income – Methods of
Recording – Income Method
Angara Law Office received from a lessor, on May 1, 2020,
Php6,000.00 for a one year rent of a space owned by Angara.
May 1, 2020 Cash
6,000.00
Rent Income
6,000.00
Rental payment received covering May 1 -April 30
Dec. 31,
2020
Rent Income
2,000.00
Unearned Rent Income
2,000.00
To set-up unearned portion of the rent income
(Php6,000.00 x 4/12) Jan. 1 to April 30, 2021
45
Unearned Income – Methods of
Recording – Income Method
Vienna Company collected a one-year advertising contract from
Emily Enterprise amounting to Php7,200.00 on June 1, 2020.
June 1, 2020 Cash
7,200.00
Advertising Income
7,200.00
Advertising income collected (June 1 to May 31)
Dec. 31,
2020
Advertising Income
3,000.00
Unearned Advertising Income
3,000.00
To set-up unearned portion of the advertising income
(Php7,200.00 x 5/12) Jan. 1 to May 31, 2021)
46
Unearned Income – Methods of
Recording – Income Method
Char Trading received interest payment from Mr. A, a client on
October 1, 2020 amouting to Php4,000.00. This interest
payment is good for 8 months starting Oct. 1, 2020.
Oct. 1, 2020 Cash
4,000.00
Interest Income
4,000.00
Interest payment received covering Oct. 1 to May 31
Dec. 31,
2020
Interest Income
2,500.00
Unearned Interest Income
2,500.00
To set-up unearned portion of the interest income
(Php4,000.00 x 5/8) Jan. 1 to May 31, 2021)
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