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FABM1 Q4 Module 1
FABM1 Q4 Module 1
Fundamentals of SENIOR
Accountancy, Business HIGH
and Management 1 (FABM 1) SCHOOL
Self-Learning
Preparing of
Module
Adjusting Entries
1
666
Quarter 4
Fundamentals of Accountancy, Business and Management 1
Quarter 4 – Self-Learning Module 1: Preparing of Adjusting Entries
First Edition, 2020
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(FABM 1)
Self-Learning
Module
Preparing of
1
Adjusting Entries
12
Quarter 4
Introductory Message
This learning material hopes to engage the learners in guided and independent
learning activities at their own pace and time. Further, this also aims to help learners
acquire the needed 21st century skills especially the 5 Cs, namely: Communication,
Collaboration, Creativity, Critical Thinking, and Character while taking into
consideration their needs and circumstances.
In addition to the material in the main text, you will also see this box in the
body of the module:
As a facilitator you are expected to orient the learners on how to use this
module. You also need to keep track of the learners' progress while allowing them to
manage their own learning. Moreover, you are expected to encourage and assist the
learners as they do the tasks included in the module.
For the learner:
This module was designed to provide you with fun and meaningful
opportunities for guided and independent learning at your own pace and time. You
will be enabled to process the contents of the learning material while being an active
learner.
Posttest - This measures how much you have learned from the
entire module.
EXPECTATIONS
PRETEST
LESSON
ADJUSTING PROCESS
❖ Is the analysis and bringing up to-date the accounts at the end of the period
before the financial statements are prepared.
ADJUSTING ENTRIES
❖ The journal entries that bring the accounts up to date at the end of the
accounting period All adjusting entries affect at least one income statement
account and one balance sheet account. Thus, an adjusting entry will always
involve a revenue or an expense account and an asset or a liability account.
3. It has one balance sheet account and one income statement account.
REASONS WHY ADJUSTING ENTRIES ARE PREPARED
1. Some income although already earned are not yet included in the trial
balance.
2. Some expenses although expired are not yet included in the trial
balance.
5. Depreciation expense
Each entry will always affect both a balance sheet and an income statement account.
TYPES OF ADJUSTING ENTRIES:
1. ACCRUED EXPENSES
❖ It is a liability account
❖ Expenses already incurred but not yet paid
❖ Also called accrued liability or accrued payable.
Illustration #1:
Assume that on Sept 30, 2018 the company had unpaid taxes
amounting to P10,000. The tax pertains to the month of Sept but is
will be paid in October.
One income statement account (nominal
ADJUSTING ENTRY: account since it is an expense)
Date Particulars Debit Credit
2019
Sept 30 Taxes Expense 10 0 0 0 -
Taxes Payable 10 0 0 0 -
To take up accrued expenses at Sept.30
Take note:
Failure to prepare the adjusting entry above, will result to taxes expense for the
month of September to be understated, resulting to an overstatement in the net income
for the month of September. On the other hand, the taxes payable will not be reflected
in the balance sheet thereby understating the total liabilities of the company at Sept.
30, 2011.
If March 26 is a Friday, then the last day of the month (March 31) falls on a
Wednesday. Since payday is every Friday, the next payment of salaries would be
April 2. Therefore, as of March 31, the salaries pertaining to Monday (March 29),
Tuesday (March 30) and Wednesday (March 31) is accrued because it would be
paid in the next payday April 2. The accrued salaries at March 31, is 3 days (Mon-
Wed) which amounts to P30,000, computed as follows:
MARCH
MON TUE WED THU FRI
26
29 30 31
ADJUSTING ENTRY:
Date Particulars Debit Credit
2019
Mar 31 Wages Expense 30 0 0 0 -
Wages Payable 30 0 0 0 -
To take up accrued wages at March 31.
Since the 3 days accrued salaries as of March 31, pertains to salaries for the
month of March, it has to be included in the salaries expense for the month of March
by preparing an adjusting entry. The income statement prepared by the company for
the month of March would show Salaries Expense of P230,000, the salaries which
had been paid amounting to P200,000 as shown in the t-account plus the accrued
salaries of P30,000.
MARCH
MON TUE WED THU FRI
26
29 30 31
2. ACCRUED REVENUE
❖ An asset account
❖ Revenue already earned by the business but not yet received or
collected at the end of the accounting period.
Illustration #1:
El Nido Apartelle is in the business of renting apartments. The company
prepares income statement on a monthly basis. As of August 31, 2018, a tenant has
not paid the August rent amounting to P8,000.
El Nido must have to prepare the adjusting entry on August 31, 2018, in order
to take up the revenue which is already earned but not yet received.
ADJUSTING ENTRY:
Date Particulars Debit Credit
2018
Aug 31 Rent Receivable 8 0 0 0-
Rent Revenue 8 0 0 0-
To take up the accrued rent revenue
as of August 31, 2018.
Illustration #2:
On October 1, 2017, LBC Company received a 6-month, 10% promissory note
from a customer in the amount of P100,000.
ADJUSTING ENTRY:
Date Particulars Debit Credit
2017
Dec 31 Interest Receivable 2 5 0 0-
Interest Income 2 5 0 0-
To take up the accrued interest revenue
at December 31, 2017
Computation:
FV of the N/R P100,000
x by interest rate 10%
Interest for 1 yr. P 10,000
x by accrued # of mos. 3/12
Accrued interest from
Oct. 1 to Dec. 31 P 2,500
***The adjusting entries for prepaid expenses depend upon the method used
to record the prepayment. The two methods of recording prepaid expenses are the
ASSET METHOD or the EXPENSE METHOD.
unused
used
Para raw maging P2,000 na lang ang Office supplies (asset method) anu yung
adjustment nten? So ang adjustment naten ay dapat ganito base sa t-account naten
na nasa ibaba.
ADJUSTING ENTRY:
ASSET METHOD
Date Particulars Debit Credit
2017
T-ACCOUNT
ASSET METHOD
Office Supplies
8 0 0 0- 6 0 0 0-
2 0 0 0-
Para raw maging P6,000 na lang ang Office supplies Expense (expense
method) anu yung adjustment nten? So ang adjustment naten ay dapat ganito base
sa t-account naten na nasa ibaba.
ADJUSTING ENTRY:
EXPENSE METHOD
Date Particulars Debit Credit
2017
T-ACCOUNT
EXPENSE METHOD
Office Supplies Expense
8 0 0 0- 2 0 0 0-
6 0 0 0-
4. UNEARNED REVENUES OR DEFERRED REVENUES
❖ A liability account
❖ Are revenues collected or received in advance by the business.
❖ These revenues are not yet earned but already collected or received by
the business.
Illustration #1:
On October 1, 2018, El Nino Apartelle, received P120,000 from SIS
Company, a tenant occupying an office space in the building. The amount is
for one year beginning month of October paid in advance by SIS.
LIABILITY METHOD
Date Particulars Debit Credit
2018
Oct 1 Cash 120 0 0 0 -
Unearned Rent Income 120 0 0 0 -
To record the receipt of advance payment
INCOME METHOD
Date Particulars Debit Credit
2018
ADJUSTING ENTRY:
LIABILITY METHOD
Date Particulars Debit Credit
2018
T-ACCOUNT
LIABILITY METHOD
Unearned Rent Income
30 0 0 0 - 120 0 0 0 -
90 0 0 0 -
Para raw maging P30,000 na lang ang Unearned Rent Income (Income
Method) ano yung adjustment natin? So ang adjustment natin ay dapat ganito base
sa t-account naten na nasa ibaba
ADJUSTING ENTRY:
INCOME METHOD
Date Particulars Debit Credit
2018
T-ACCOUNT
INCOME METHOD
Rent Income
90 0 0 0 - 120 0 0 0 -
30 0 0 0 -
Computation for earned portion as of Dec. 31, 2018:
Rent received in advance P120,000
÷ by # of mos. Covered by
amount received 12
Monthly rental P 10,000
x by # of mos. from Oct.1
to Dec. 31, 2018 3
Earned portion of the rent
received in advance P 30,000
5. DEPRECIATION OF PPE
❖ Property, Plant and Equipment
❖ Physical resources that are owned and used by a business which are
relatively fixed or permanent in nature that have a long useful life
❖ Sometimes called fixed assets or plant assets
**The amount debited to Depreciation Expense is that portion of fixed asset cost that
is charged to expense. Accumulated Depreciation is a contra-asset account. The credit
is not made directly to the fixed asset account in order to preserve the original cost of
the fixed asset.
2. Book Value
Cost of PPE P xxx
Less: Annual depreciation ____xxx
Book Value P xxx
Illustration #1:
On September 1, 2017, DHL Delivery Services purchased a delivery truck for
a total cost of P960,000. The estimated useful life of the truck is 8 years, at the end
of which it is estimated to be sold for P80,000. Assume the company is using the
SLM.
COMPUTATION:
Since the delivery truck was acquired on September 1, 2017, the depreciation
expense for the year 2017 is only for four (4) mos. The succeeding year’s depreciation
will be P110,000, the annual depreciation.
ADJUSTING ENTRY:
Date Particulars Debit Credit
2017
6. UNCOLLECTIBLE ACCOUNTS
❖ Relates to the company’s receivables which might not be collected.
❖ To comply with the matching principle, companies prepare adjusting
entry to recognize the anticipated loss that the business might incur
arising from these uncollectible accounts
Date Particulars Debit Credit
XXX
XXX XX Doubtful Accounts Expense xxx x x x -
Allowance for Doubtful Accounts xxx x x x -
To take up provision for the uncollectible
accounts.
Illustration #1:
Assume that on December 31, 2017, the end of the company’s annual
accounting period, the company has outstanding accounts receivable or P400,000.
The company estimates that 4% of these receivables might not be collected. The
allow. For uncollectible account has no balance.
ADJUSTING ENTRY:
Date Particulars Debit Credit
2017
Dec 31 Doubtful Accounts Expense 16 0 0 0 -
Allowance for Doubtful Accounts 16 0 0 0 -
To take up provision for the uncollectible
accounts. (P400,000 x 4% = P16,000)
ACTIVITIES
Activity 2
Prepare the adjusting entries.
1. Quirk Company purchased office supplies costing P6,000 and debited Office
Supplies for the full amount. At the end of the accounting period, a physical
count of office supplies revealed P2,400 still on hand. The appropriate
adjusting journal entry to be made at the end of the period would be?
3. Baden Realty Company received a check for P18,000 on July which represents
a 6-month advance payment of rent of a building it rents to a client.
Unearned Rent was credited for the full P18,000. Financial statements will be
prepared on July 31. Give the adjusting journal entry Baden Realty Company
should make.
5. Manning Corporation issued a one-year, 9%, P200,000 note on April 30, 2018.
Interest Expense for the year ended December 31, 2018 was?
WRAP-UP
To summarize what you have learned in the lesson, answer the following
questions:
VALUING
Reflect on this!
Directions: Identify each item below. Write your answer before the item number.
References