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ADJUSTING ENTRIES New

The document discusses adjusting entries that are prepared at the end of an accounting period to update the books. It provides examples of different types of adjusting entries needed for accrued expenses and revenues, prepaid expenses, unearned revenues, depreciation, bad debts, and more. The purpose is to conform to accounting principles, arrive at correct asset/liability valuations, and determine owner's equity accurately.

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Shane Kim
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87 views47 pages

ADJUSTING ENTRIES New

The document discusses adjusting entries that are prepared at the end of an accounting period to update the books. It provides examples of different types of adjusting entries needed for accrued expenses and revenues, prepaid expenses, unearned revenues, depreciation, bad debts, and more. The purpose is to conform to accounting principles, arrive at correct asset/liability valuations, and determine owner's equity accurately.

Uploaded by

Shane Kim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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ADJUSTING ENTRIES

Prepared by: Prof. Anita B. Catolico


CPA/MBA
ADJUSTING ENTRIES – These are
prepared at the end of the accounting
period to update the books. These are
recorded in the general journal.
PURPOSES:
1. To conform to the principle of
Matching Costs Against Revenue” which
will result in a more accurate
measurement of the net income.
2. To arrive at the correct valuation of
assets and liabilities.
3. To arrive at the correct determination
of the owner’s equity.
ACCRUED EXPENSES-ALREADY
INCURRED BUT NOT YET PAID.
1.EC Co. pays its employees every
Saturday. Total weekly payroll is P35,000.
Dec. 31 falls on a Tuesday.

AJE:
12/31 Salaries Expense 15,000
 Salaries Payable 15,000
2. On Dec. 1, 2020 EC Co. borrowed
P400,000 from the bank. TERM-3 months
at 9%p.a.

AJE:
12/31 Interest Expense 3,000
 Interest Payable 3,000
ACCRUED INCOME-ALREADY
EARNED BUT NOT YET
COLLECTED.
3.EC Co. leases a part of their office for
P3,000 a month starting Nov. 1, 2020.
Per contract, collection is done after every
3 months.
AJE:
12/31 Rent Receivable 6,000
 Rent Income 6,000
4.On Nov. 16, 2020 EC Co. received a
90-day 6% promissory note from a
customer for P200,000.

AJE:
12/31 Interest Receivable 1,500
 Interest Income 1,500
PREPAID EXPENSES-ALREADY PAID
BUT NOT YET INCURRED/USED.
5.EC Co. paid 3 months rent in advanced
on Nov. 1, 2020 for P60,000.
ASSET METHOD:
11/01 Prepaid Rent 60,000
Cash 60,000
AJE:
12/31 Rent Expense 40,000
Prepaid Rent 40,000
EXPENSE METHOD:
11/01 Rent Expense60,000
 Cash 60,000
AJE:
12/31 Prepaid Rent 20,000
 Rent Expense 20,000
6. On Dec. 1, 2020 EC Co. paid P2,000
for supplies to be use for 4 months.
UNEARNED INCOME- ALREADY
COLLECTED BUT NOT YET EARNED
7. On Dec. 1, 2020 EC Co. received P15,000
from a tenant as advanced rent for 3 months.
INCOME METHOD:
12/01 Cash 15,000
 Rent Income 15,000
AJE:
12/31 Rent Income 10,000
 Unearned Rent Income 10,000
LIABILITY METHOD:
12/01 Cash 15,000
 Unearned Rent Income 15,000
AJE:
12/31 Unearned Rent Income 5,000
Rent Income 5,000
8.On Sept. 1, 2020 EC Co. received
P12,000 from a customer for 6 months
Repairs & Maintenance services.
DEPRECIATION-DECREASE IN THE
VALUE OF A NON-CURRENT ASSET
DUE TO THE ORDINARY WEAR AND
TEAR OR PASSAGE OF TIME.
COST-SCRAP VALUE
ESTIMATED LIFE x No. of
months/12
On Jan. 1, 2020 EC Co. purchased an
equipment for P80,000. Estimated life is
10 yrs with scrap value of P8,000.
AJE:
12/31/20 Depreciation Expense 7,200
 Accumulated Depreciation 7,200
12/31/20

EQUIPMENT P80,000
LESS ACCUM. DEPRECIATION 7,200
NET BOOK VALUE P72,800
 On July 1, 2020 EC Co. bought furniture
costing P50,000 depreciated at the rate of
10% a year. Estimated life is 10 yrs with
NO scrap value.

12/31 Depreciation Expense 2,500


 Accumulated Depreciation 2,500
BAD DEBTS OR IMPAIRMENT LOSS-
REFERS TO THE ESTIMATED
RECEIVABLES WHICH MAY NOT BE
COLLECTED.
METHODS ON COMPUTATION:
1. Percentage of Sales
2. Percentage of Accounts Receivable
3. Aging the receivables
BALANCES AS OF 12/31/20:
SALES ………… P180,000
ACCTS. RECEIVABLE …….
30,000
ALLOWANCE FOR IMPAIRMENT
LOSS……………………. 1,200
BAD DEBTS IS 1% OF SALES:
180,000 X 1% = 1,800
AJE:
12/31/20
Impairment Loss 1,800
 Allowance for Impairment Loss 1,800
BAD DEBTS IS 9% OF ACCTS.
RECEIVABLE:
30,000 X 9% = 2,700-1,200 = 1,500

AJE:
12/31/20
Impairment Loss 1,500
 Allowance for Impairment Loss 1,500
AGING OF RECEIVABLES:
Based on aging Allowance for
Impairment Loss should be increased by
P1,100.

AJE:
12/31/20
Impairment Loss 1,100
 Allowance for Impairment Loss 1,100
Based on aging Allowance for
Impairment Loss should be increased to
P2,200.
2,200 – 1,200 = 1,000
AJE:
12/31/20
Impairment Loss 1,000
 Allowance for Impairment Loss 1,000
NOW LET’S TRY!!!
1. THESUPPLIES EXPENSE SHOWED
A BALANCE OF P12,160. ON THIS
DATE, P3,160 WORTH OF SUPPLIES
REMAIN UNUSED.
2. THE ADVERTISING EXPENSE OF
P18,000 WAS PAID ON NOV. 1, 2020.
THIS AMOUNT REPRESENTS THE
ADVERTISEMENT FOR 3 MONTHS IN
THE NEWSPAPER.
3. A ONE YEAR
FIRE INSURANCE
WAS TAKEN ON AUGUST 1, 2020 IN
THE AMOUNT OF P12,000. IT WAS
CHARGED TO INSURANCE
EXPENSE.
4. A 30-DAY 6%NOTE FOR P24,000
WAS RECEIVED FROM A CUSTOMER
DATED DEC. 15, 2020.
5.SALARIES OF THE EMPLOYEES
ARE PAID EVERY 15 DAYS. UNPAID
SALARIES ON DEC. 31, 2020
AMOUNTED TO P15,650.
6. THE OFFICE EQUIPMENT
SHOWED A BALANCE OF P164,000
WITH ACCUMULATED
DEPRECIATION OF P7,000. ON JULY
1, 2020 AN EQUIPMENT COSTING
P24,000 WAS ACQUIRED. THE
EQUIPMENTS ARE DEPRECIATED AT
5% PER YEAR.
7. THERE IS AN OUTSTANDING 60-
DAY 6% NOTE PAYABLE
AMOUNTING TO P140,000 DATED
DEC. 1, 2020.
8. FURNITURES HAVING AN
ESTIMATED LIFE OF 10 YRS WITH
NO SCRAP VALUE SHOWED A
BALANCE OF P48,000 WITH
ACCUMULATED DEPRECIATION OF
P4,800.
9. A TENANT PAYS HIS MONTHLY
RENTAL OF P3,000 ON THE 15TH OF
EACH MONTH. RENT INCOME IS
CREDITED.
10. THE ACCOUNTSRECEIVABLE
SHOWED A BALANCE OF P26,000
WITH ALLOWANCE FOR
IMPAIRMENT LOSS OF P800. IT IS
ESTIMATED THAT 4% OF THE
ACCTS. RECEIVABLE ARE
UNCOLLECTIBLE.
11. THEOFFICE RENTAL IS P24,000
PER MONTH PAYABLE IN ADVANCE
EVERY 15TH DAY OF THE MONTH.
RENT EXPENSE IS DEBITED.
12.P10,000 OF THE SERVICE
INCOME REPORTED IN THE TRIAL
BALANCE IS STILL UNEARNED.
13. THEDELIVERY VAN ACQUIRED
2 YEARS AGO COSTING P800,000
WITH ACCUMULATED
DEPRECIATION OF P80,000 IS
DEPRECIATED AT THE RATE OF 5%
PER ANNUM.
14. THE LOAN WITH THE BANK
AMOUNTING TO P120,000 TAKEN ON
OCT. 2, 2020 IS PAYABLE IN 6
MONTHS WITH INTEREST OF 15%
p.a.
TIO N
TT EN
USA
EC IO
R
U RP
R YO
FO
READY FOR THE QUIZ??
SHOWN BELOW IS THE TRIAL
BALANCE FOR DEC. 31, 2020:

ACCTS RECEIVABLE P 22,500


ALLOW. FOR IMP. LOSS 1,200
NOTES RECEIVABLE 20,000
OFFICE EQPT. 92,000
ACCUM. DEPRECIATION 4,500
RENTAL INCOME 12,000
SERVICE INCOME 450,000
SUPPLIES EXPENSE 6,250
INSURANCE EXPENSE 7,200
SALARIES EXPENSE 120,000
REQUIRED:
PREPARE ADJUSTING ENTRIES FOR
DEC. 31, 2020.
1. UNUSED OFFICE SUPPLIES AT
THE END, P 320.
2. ONE-YEAR INSURANCE WAS PAID
ON APRIL 1 OF THE CURRENT YEAR.
3. OFFICE EQUIPMENT HAD A
USEFUL LIFE OF 10 YEARS WITH
SCRAP VALUE OF P2,000. IT WAS
ACQUIRED JULY 1, 2020.
4. UNEARNED RENTAL INCOME IS
1/3 OF THE AMOUNT COLLECTED.
5. SERVICE INCOME NOT YET
COLLECTED, P3,000.
6. THE 60-DAY 6% NOTE WAS
RECEIVED ON DECEMBER 1, 2020.
7. ESTIMATED BAD DEBTS IS 10%
OF THE ACCOUNTS RECEIVABLE.
8. ACCRUED SALARIES IS P12,000.
NOW LET’S CHECK!
ANSWERS:
1. Unused Supplies 320
 Supplies Expense 320
2. Prepaid Insurance 1,800
 Insurance Expense 1,800
3. Depreciation Expense 9,000
 Accumulated Depreciation 9,000
4. Rent Income 4,000
 Unearned Rent Income 4,000
5. Accounts Receivable 3,000
 Service Income 3,000
6. Interest Receivable 100
 Interest Income 100
7. Impairment Loss 1,050
 Allowance for Imp. Loss 1,050
8. Salaries Expense 12,000
 Salaries Payable 12,000
Bring 10 columns Worksheet next
meeting (2 pcs)

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