Here are the six types of adjusting entries:
1. Accrued revenues
2. Unearned revenues
3. Accrued expenses
4. Prepaid expenses
5. Depreciation
6. Allowance for uncollectible accounts
Given:
Cost of asset - P200,000
Salvaged value - P20,000
Useful life - 10 years
Depreciation expense = Cost - Salvaged value / Useful life
= P200,000 - P20,000 / 10 years
= P18,000 per year
Here are the six types of adjusting entries:
1. Accrued revenues
2. Unearned revenues
3. Accrued expenses
4. Prepaid expenses
5. Depreciation
6. Allowance for uncollectible accounts
Given:
Cost of asset - P200,000
Salvaged value - P20,000
Useful life - 10 years
Depreciation expense = Cost - Salvaged value / Useful life
= P200,000 - P20,000 / 10 years
= P18,000 per year
Here are the six types of adjusting entries:
1. Accrued revenues
2. Unearned revenues
3. Accrued expenses
4. Prepaid expenses
5. Depreciation
6. Allowance for uncollectible accounts
Given:
Cost of asset - P200,000
Salvaged value - P20,000
Useful life - 10 years
Depreciation expense = Cost - Salvaged value / Useful life
= P200,000 - P20,000 / 10 years
= P18,000 per year
Here are the six types of adjusting entries:
1. Accrued revenues
2. Unearned revenues
3. Accrued expenses
4. Prepaid expenses
5. Depreciation
6. Allowance for uncollectible accounts
Given:
Cost of asset - P200,000
Salvaged value - P20,000
Useful life - 10 years
Depreciation expense = Cost - Salvaged value / Useful life
= P200,000 - P20,000 / 10 years
= P18,000 per year
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CARMINA O.
DONGCAYAN
FEBRUARY 10, 2020
ADJUSTING ENTRIES Adjustingentries are made in the accounting books at the end of an accounting period. These are made after a trial balance is prepared.
What is the purpose of adjusting entries?
-The purpose of adjusting entries is to adjust revenues and expenses to the accounting period in which they actually occurred. There are six types of adjusting entries 1. Accrued revenues 2. Unearned revenues 3. Accrued expenses 4. Prepaid expenses 5. Depreciation 6. Allowance for uncollectible account Accrued Revenues Ifyou performed a service for a customer in one month, but don’t bill the customer until the next month, you would make an adjusting entry showing the revenue in the month you performed the service.
The entry is:
Debit Credit Accounts Receivable 0.00 Service Revenue 0.00 Unearned Revenues Unearned revenues refer to payments for goods to be delivered in the future or services to be performed. The adjusting entry will depend on the method adapted by the organization in recording the advanced payment: a.Revenue Method For example, a tenant paid in advance in September 1, 2016 a rental fee good for one year amounting to P12,000. The entry in September 1, 2016 will be:
Debit Credit Cash 12,000 Revenue 12,000 AtDecember 31, 2016, an adjusting entry will be set- up for the actual revenue earned (Sept to Dec= 4mos or P4,000) and the remaining unused portion as liability (Jan to Aug= 8mos or P8,000).
The adjusting entry at the end of the year will be:
The adjusting entry at the end of the year will be:
Debit Credit Unearned revenue 4,000 Revenue 4,000 Accrued Expenses These are expenses that are already incurred by the business organization but not yet paid as of reporting date.
Example: Weekly wages (Monday to Saturday) are paid every Saturday
amounting to P12,000. If the Saturday is December 28, the 3 days which is December 29, 30 and 31 remain unpaid at the end of the accounting period. Therefore, the adjusting entry will be: Debit Credit Salaries and Wages 6,000 Accrued Expense Payable 6,000 Prepaid Expenses Prepaid expense are assets that are paid in advance and gradually get used up during the accounting period. The adjusting entry will depend on what method the business organization adapts while recording the initial transaction. a. Asset method For example, the business organization purchased supplies in March 1, 2016 for P24,000. At the end of December 31, 2016, used up portion which will be charged to expense will be equivalent the to 10 months (March 1 to Dec 31, 2016) and the unused portion which will be an asset is 2 months (Jan & Feb, 2017).
The entry when the supplies are purchased will be:
Debit Credit Supplies 24,000 Cash or Accounts payable 24,000 The adjusting entry to charge the used up portion to expenses will be:
b. Expense Method The entry when the supplies are purchased will be: Debit Credit Supplies expense 24,000 Cash 24,000 The adjusting entry at Dec 31, 2016 to set up the asset portion will be: Supplies 4,000 Supplies expense 4,000 Depreciation Depreciation is the process of allocating the cost of an asset, such as machinery or a piece of equipment, over the serviceable or economic life of an asset. This type of adjusting entry has the following terminologies: a. Cost of the asset- this is the amount recorded when the asset is purchased. b. Salvaged value- scrap value or residual value, this is the estimated amount of recovery at the end of the asset’s useful life. c. Estimated useful life- this is an accountant’s fair estimate of the economic life of the asset. d. Carrying amount or net book value- this is the difference between the cost of the asset and the accumulated depreciation. The formula in the computation of depreciation expense is:
Depreciation expense= Cost of the asset-Salvaged value
Estimated Useful Life Example: A machinery having a useful life of 5 years is purchased on June 1, 2016. Cost of the asset is P25,000 whereas its residual value is expected to be P1,000. Calculate depreciation expense for the year ending December 31, 2016. P25,000 - P1,000 Depreciation expense = 5 years = P4,800 per year/12 months = P400 per month X 7 months = P2,800 Adjusting entry at December 31, 2016:
Debit Credit Depreciation expense 2,800 Accumulated depreciation 2,800 Allowance for Uncollectible Account The allowance for doubtful accounts is a reduction of the total amount of accounts receivable appearing on a company’s balance sheet, and is listed as a deduction below the accounts receivable.
The adjusting entry is:
Debit Credit Uncollectible account expense 0.00 Allowance for uncollectible account 0.00 There are two methods of computing this adjusting entry: a. Based on percentage of account sales for goods sold or services rendered. Example: The total sales is P100,000 and P25,000 represents cash sales. The balance of accounts receivable is P30,000. About 5% is proven uncollectible.
Adjusting entry will be:
Debit Credit Uncollectible account expense 3,750 Allowance for uncollectible account 3,750 b. Based on accounts receivable balance
Debit Credit Uncollectible accounts expense 1,500 Allowance for uncollectible account 1,500 Activity. Write your answer on a ½ sheet of pad paper. 1.What are the six types of adjusting entries? 2.Given the following data compute for depreciation expense of an office equipment acquired on February 1, 2019. Cost of the asset- P200,000 Salvaged value- P20,000 Useful life- 10 years
