ADJUSTING JOURNAL ENTRIES

Are entries used to update the accounts prior to the preparation of Financial Statements because t
Transactions are apportioned properly between the accounting period affected. The accounts affected
that there would be no overstatement of balance sheet items and income statement items.
The process of determining an entity's net income or net loss requires certain income and expense
According to the accrual principle, income is recognized at the time it is actually earned and expense
Thus, a receipt of cash does not necessarily mean a recognition of income, and payment of cash does
Ex. Cash received from a customer for a reservation of a hotel room for twoo weeks
one year insurance premium paid for the insurance of a house.
TYPES:
1. Prepayments
2. Unearned Income
3. Accrued Expenses
4. Accrued Income
5. Bad Debts/Doubtful Accounts
6. Depreciation Expense

1. Prepayments Are expenses already paid but not yet incurred or used.

Journal Entry upon payment

Prepaid Expense xxx
Cash xxx

Adjusting Entry at the end of the accounting period

Expense xxx
Prepaid Expense xxx

Example 1: On Oct. 1, 2014, X Co. paid a one-year advance rent for Php 24,000.
Give the adjusting entry on December 31, 2014.

Journal Entry upon payment, Oct 1, 2014

Prepaid Rent 24,000
Cash 24,000
Adjusting Entry at the end of the accounting period, Dec 31, 2014
Rent Expense 6000
Prepaid Rent 6000

Example 2
On March 31, 2014, B Co. paid Php 72,000 insurance premium for 2 years. Give the adjusting entries o

Journal Entry upon payment,March 31, 2014

Prepaid Insurance
Cash
 Adjusting Entry at the end of the accounting period, May 31, 2014
Insurance Expense
Prepaid Insurance

Example 3:
Supplies account on Jan 1, 2014 showed a balance of Php 7,000. On December 31, 2014, supplies on

Adjusting Entry at the end of the accounting period, Dec. 31, 2014
Supplies Expense
Supplies
To record supplies used.

2. Unearned Income Is income already received but not yet earned.

Journal Entry upon receipt of cash

Cash xxx
Unearned Income xxx
Adjusting Entry at the end of the accounting period
Unearned Income xxx
Income xxx
Note: The amount of the adjusting entry is the earned portion of the amount initially received.

Example 1: On Nov 30, 2014, A Co. received Php 36,000 advanced rental for 6 months. Give the adjus
Journal Entry upon receipt of cash on Nov. 30, 2014.
Cash 36000
Unearned Income 36000
Received 6 mos rent in advance
Adjusting Entry at the end of Dec. 31, 2014
Unearned Income 6000
Rent Income 6000
To record rent earned for one month

Ex. 2 On May 1, Dr. Young received Php 60,000 for medical fees to be rendered in the next 3 month. G

Journal Entry upon receipt of cash

Cash 60000
Unearned Medical Fees 60000
Received cash for medical services to be rendered
Adjusting Entry at the end of May
Unearned Medical Fees 20,000
Medical Fees 20000
To record medical fees earned

3. Accrued Expenses Are expenses already incurred or used but not yet paid.
Adjusting Entry at the end of the accounting period
Expenses xxx
Expenses Payable xxx
Ex 1. Unpaid salaries at the end of Dec. 31, 2014 amounted to Php 20,000
Adjusting Entry at the end of Dec.
Expenses 20,000
Salaries Payable 20,000
To record unpaid salaries to date

Ex. 2: The company received a tel bill in the amount of Php 1,200 on Dec 29, 2014 which the company
Adjusting Entry at the end of Dec, 2014
Utilities Expense 1,200
Utilities Payable 1,200

4. Accrued Income Is income already earned but not yet received.

Adjusting Entry at the end of the accounting period
Income Receivable xxx
Income xxx

Ex. A one year 10% note receivable in the amount of Php 100,000 was received on January 1, 2014. T
Give the adj journal entry on June 30, 2014.

Adjusting Entry on June 30, 2014

Interest Receivale 5000
Interest Income 5000
To record interest income earned
interest in 1 year 10% of 100,000 = 10,000
interest in 6 months = 5,000

5. Bad Debts/Doubtful Accounts Are losses due to uncollectible accounts.

Adjusting Entry at the end of the accounting period
Bad Debts Expense xxx
Allowance for Bad Debts xxx
To record estimated uncollectible accounts

Ex. 1 Accounts Receivable shows a blance of Php 50,000. It is estimated that 10% of this is uncollectib
Give the adjusting entry on Dec. 31, 2014 for the provision of the estimated uncollectible account.

10% of 50,000 = 5,000

Ledger balance on Allowance for Bad Debts = 3,000
Bad Debts Expense 2,000
Allowance for Bad Debts 2,000
To record estimated uncollectible accounts
6. Depreciation Expense Is the allocation of asset over its estimated useful life.
This is the expense alloted for the wear and tear of property an

Three factors considered in computing the depreciation expense:

1. Cost is the purchase price of the depreciable asset. (PV)
2. Salvage value is the estimated value of the asset at the end of its useful life., (SV)
3. Estimated Useful Life, as the name connotes, is not an exact measurement but merely an es
number of years an asset can be useful to the enterprise. (n)

Formula
Cost
Less: Salvage Value
Depreciable cost
Divided by: Estimated Useful Life
Annual Depreciation

d= PV-SV/n

A building with an estimated useful life of 20 years finished construction on April 1, 2014. The cost of
2.6 Million with an estimated salvage value of Php 200,000. Give the adjusting entry on December 31

Adjusting entry on Dec 31, 2014

Depreciation Expense 90000
Accumulated Depreciation 90000
To record the depreciation of the building
Computation:
Cost 2,600,000
Less: Salvage Value 200,000
Depriaciable Cost 2,400,000
Divided by estimated useful life 20 years
Annual Depreciation 120,000

April 1 to Dec 31 9 months

Total depreciation for 9 months 120,000/12 X 9
90,000
cial Statements because they affect more than one accounting period.
d. The accounts affected are adjusted so
atement items.
rtain income and expense accounts to be apportioned over several accounting periods.
ally earned and expense is recognized at the time it is actually incurred or used.
nd payment of cash does not necessarily mean the recognition of expense.

incurred or used.

ve the adjusting entries on May 31, 2014.

er 31, 2014, supplies on hand amounted to Php 2,000.

nt initially received.

6 months. Give the adjusting Journal entry on Dec. 31, 2014.

ed in the next 3 month. Give the Adjusting Journal entry at the end of May.

es to be rendered

but not yet paid.

 2014 which the company intends to pay on January 5, 2015.

ed on January 1, 2014. The interest and the principal are payable on maturity date.

e accounts

10% of this is uncollectible.

uncollectible account.

accounts
 ated useful life.
r and tear of property and equipment due to passage of time.

eful life., (SV)

rement but merely an estimation of the

April 1, 2014. The cost of the building is

g entry on December 31, 2014 to record the depreciation of the building.

120000 annual depreciation

10000 monthly
Prepare the adjusting entry for each of the following for year ended December 31, 2014
1. Paid Trio Insurance Co. Php 33,000 one year car insurance to commence August 1, 2014. The amou

31-Aug-14 Insurance per month

Prepaid Insurance 33,000.00 Expired insurance
Cash 33,000.00
To record one year car insurance

Adjusting Entry
Dec. 31, 2014 Insurance Expense 13,750.00
Prepaid Insurance 13,750.00
To record expired insurance

2. Borrowed Php 200,000 from Metro Bank issuing a one year note with 12% annual interest on April 3

30-Apr-14 Cash 200,000.00 One year interest

Notes Payable 200,000.00 Monthly interest
To record loan from Metro Bank 8 months interest

Adjusting Entry
31-Dec-14 Interest Expense 16,000.00
Interest Payable 16,000.00
To record unpaid accrued interest

3. Bought Php 20,000 equipment with 5 year estimated life and salvage value of Php 2,000.
Cost
Depreciation Expense 3,600.00 Less: Salvage Value
Accumulated Depreciation 3,600.00 Depreciable cost
To record depreciation of equipment Divided by est life
Annual Depreciation
Monthly Depreciation
4
30-Jun-14
Cash 51000 Monthly
Unearned Service Income 51000 Total earne

Adjusting Entry
31-Dec-14 Unearned Service Income 25500
Service Icome 25500
To record service income eraned

5
st 1, 2014. The amount of premium was debited to Prepaid Insurance.

nsurance per month 2,750.00

xpired insurance 13,750.00

ual interest on April 30, 2014

One year interest 24,000.00

Monthly interest 2,000.00
months interest 16,000.00

Php 2,000.
20,000.00
ess: Salvage Value 2,000.00
epreciable cost 18,000.00
ivided by est life 5.00
nnual Depreciation 3,600.00
Monthly Depreciation 300.00

4250
25500
Cost 42,000.00
Less: Salvage Value 3,000.00
Depreciable cost 39,000.00
Divided by est life 5.00
Annual Depreciation 7,800.00
Monthly Depreciation 650.00