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    Here is the adjusting entry for the month ended January 31, 2021: January 31, 2021 Depreciation Expense - Service Vehicle P 5,000 Accumulated Depreciation - Service Vehicle P 5,000 To record one month's depreciation expense using the straight-line method: Asset Cost: Php 160,000 Estimated Salvage Value: Php 10,000 Depreciable Cost: Php 160,000 - Php 10,000 = Php 150,000 Useful Life: 3 years Annual Depreciation: Php 150,000 / 3 years = Php 50,000 Monthly Depreciation: Annual / 12 months = Php 50,

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    Adjusting-entries

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    Here is the adjusting entry for the month ended January 31, 2021: January 31, 2021 Depreciation Expense - Service Vehicle P 5,000 Accumulated Depreciation - Service Vehicle P 5,000 To record one month's depreciation expense using the straight-line method: Asset Cost: Php 160,000 Estimated Salvage Value: Php 10,000 Depreciable Cost: Php 160,000 - Php 10,000 = Php 150,000 Useful Life: 3 years Annual Depreciation: Php 150,000 / 3 years = Php 50,000 Monthly Depreciation: Annual / 12 months = Php 50,

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    14 views27 pages

    Adjusting Entries

    Uploaded by

    quintosjery
    Here is the adjusting entry for the month ended January 31, 2021: January 31, 2021 Depreciation Expense - Service Vehicle P 5,000 Accumulated Depreciation - Service Vehicle P 5,000 To record one month's depreciation expense using the straight-line method: Asset Cost: Php 160,000 Estimated Salvage Value: Php 10,000 Depreciable Cost: Php 160,000 - Php 10,000 = Php 150,000 Useful Life: 3 years Annual Depreciation: Php 150,000 / 3 years = Php 50,000 Monthly Depreciation: Annual / 12 months = Php 50,

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    of 27

    Prepaid Expense (offices supplies & insurance)

    ▪ Define what adjusting entries are;


    ▪ Enumerate the different types of adjusting entries
    ▪ Prepare adjusting entries for prepayment using two
    methods – asset method and expense method
    ▪ Compute the proper balances of insurance expense
    and prepaid insurance
    The Accounting Cycle

    Identify and Record journal


    analyze entries
    transaction Post to general
    ledger

    Prepare
    unadjusted trial
    balance
    make adjusting
    entries
    ▪Adjusting Entries - Entries made at the
    end of the accounting period before
    closing procedure to update balance of
    asset, liability , revenue, and expense
    account, to make their balances ready for
    the preparation of financial statement.
    ▪ Involves changing accounting balances at the end of
    the period from what is the current balance of the
    account to what is the correct balance for proper
    financial reporting
    ▪ It assign revenues to the period in which they are
    earned and expenses to the period in which they are
    incurred.
    ▪ In effect, this entries are needed to measure properly
    the profit for the period and to bring asset and liability
    account to correct balances for the financial statement.
    ▪ Prepaid expense
    ▪ Deferred revenues
    ▪ Accrued revenue
    ▪ Accrued expense
    ▪ Asset depreciation
    ▪ Uncollectible account
    ▪ Subsequent measurements of asset and liability
    accounts
    ▪Completeness
    ▪Freedom from error
    ▪Timeliness
    ▪Accrual basis
    ▪Revenue recognition
    ▪Matching principle
    ▪Prepaid expense are expenses paid in
    advance.

    TWO METHOD OF RECORDING PREPAID EXPENSE;


    ▪ Asset method – the account debited upon payment is
    an asset account. Upon adjustment , an expense account
    is debited with a corresponding credit to an asset
    account.
    ▪ Expense method – the account debited upon payment
    is an expense account. Upon adjustment, an asset
    account is debited and an expense account is credited.
    ▪ Asset Method is used by accountant if the account used in the initial entry in recording
    revenue is an asset account.
    The initial journal entry is:

    > If the accountant used asset method, the adjustments will be this way:
    ▪ Expense Method is used by the accountant if the account used in the initial entry in
    recording revenue is an expense account.
    ▪ The initial journal entry is:

    If the accountant used expense method, the adjustment will be this


    way:
    Let us have examples for better understanding.

    ▪ Company X purchased office supplies on August 1, 2020


    amounting to 100,000 in which the company immediately
    paid in cash. At December 31, 2020 which coincides to be
    the end of the accounting period, inventory record show that
    the amount of remaining office supplies amount to 40,000.

    ▪ Required : prepare the initial and adjusting entries for this


    transaction using the two method namely, asset method and
    expense method
    EXAMPLES FOR BETTER UNDERSTANDING.

    ▪Case #2: Prepaid insurance


    ▪On October 1, 2019, Malinis
    Company acquired a three-year
    insurance policy for Php 36,000.00
    paid in advance. How much is the
    remaining balance for December 31,
    2021 insurance of Malinis Company.
    ▪ Directions: Prepare the adjusting entry for the following situations. The last
    day of the accounting period is December 31, 2020. Write your answers on a
    separate sheet of paper.

    ▪ 1.1. On 2019 the payment of the Php 19,000.00 insurance premium for two
    years in advance was originally recorded as Prepaid Insurance. One year of
    the policy has now expired.

    ▪ 1.2. All employees earn a total of Php 10,000.00 per day for a five-day week
    beginning on Monday and ending on Friday. They were paid for the
    workweek ending December 26. They worked on Monday, December 29;
    Tuesday, December 30; and Wednesday, December 31.
    ▪Deferral is the postponement of the recognition of an expense already paid but not
    yet incurred or of revenue already collected but not yet earned.
    ▪ Deferred Revenue or Unearned Revenue refers to revenue
    already received but not yet earned.

    ▪ Two Methods for Deferral adjustment

    ▪Income Method is used by accountant, if the account used in the initial entry in
    recording revenue is an income account.
    ▪Liability Method is used by accountant if the account used in the initial entry in
    recording revenue is a liability account.
    ▪ The initial journal entry for income method is:

    ▪ If the accountant used income method, the adjusting entry


    will be this way:
    ▪ The initial journal entry for liability method is:

    ▪ If the accountant used liability method the adjusting entry


    will be this way:
    ▪ Case No. 4: On July 1, 2019, Matapat Company received a check amounting to
    Php 48,000.00 for two-year rent paid in advance.
    Income Method
    Initial journal entry Adjusting journal entry

    Liability Method

    Initial journal entry Adjusting journal entry


    ▪ Accrued Revenue or Accrued Income arises when
    the business renders services or delivers goods to its clients, but
    collections have not yet been received.
    ▪ Journal entry

    Accrued Expenses arise when businesses incur expenses but not yet
    paid. Examples of these are salaries, taxes, and interest.

    Journal entry
    ▪ Case No. 5: RDS Laundry Services rendered a rush laundry services to a client on June 30,
    2021 amounting to Php 35,000.00. The services have been earned but unbilled.
    ▪ Journal Entry

    Date Debit Credit


    June 30, 2021 Account Receivable 35,000
    laundry Revenue 35,000
    To record accrual unrecorded revenue

    Transaction :To record accrual of unrecorded revenues


    Analysis : increase in assets. Increase in owners equity
    Rules: increase in assets are recorded by debits. Increase in owner;s equity are recorded by
    credits.
    Entries: increase in assets is recorded by a debit to Account Receivable. Increase in owner’s
    equity is recorded by a credit to Laundry Revenues.
    ▪ Case No. 6: The owner of RDS Company invested Php 100,000.00 cash in certificate
    of deposit that paid 5% annual interest. The certificate was acquired on January 1
    and carried a one-year term to maturity. The adjusting entry for the year
    ended December 31, 2020 is shown below:

    Interest = Principal x Interest Rate x Time Period

    =P100,000 x 5% x 12/12 (12/12 = 1 year)


    =P100,000 x .05 x 1
    = P5,000
    ▪ Case No. 8: The owner of RDS Company borrowed Php 500,000.00 by issuing a
    one-year note with 10% annual interest to Rural Bank of Malasakit on October
    1, 2020. Prepare the adjusting entry for the year ended December 31, 2020.
    ▪ Journal entry
    ▪ Dec. 31,2020 Interest Expense P 12,500.00
    Interest Payable P 12,500
    To record accrual unrecorded expense

    The interest incurred for the year is determined by the following formula:
    ▪ Interest = Principal x Interest Rate x Time Period
    ▪ =Php 500,000.00 x 10% x 3/12 (3/12 = from October to December)
    ▪ =Php 500,000.00 x .05 x 3/12
    ▪ =Php 12,500.00
    ▪Case No. 9: Three-day salaries are
    unpaid as of December 31 2020.
    Salaries are Php 75,000.00 for a five-
    day work week.
    ▪ To compute for depreciation, you will be using a formula. The components of the formula are
    explained below.
    ▪ 1. Asset cost is the amount an entity paid to acquire the depreciable asset.
    ▪2. Estimated salvage value is the amount that the asset can be probably sold for at the end of its
    estimated useful life.
    ▪ 3. Estimated useful life is the number of periods that an entity can make use of the asset.

    ▪ Straight-line method computation for depreciation


    ▪ Case No. 10: The owner of RDS Company paid Php160,000.00 cash to purchase a
    delivery van (surplus) on January 1. The van was expected to have a three-year life and
    a Php10,000.00 salvage value. Depreciation is computed on a straight-line basis.
    Prepare the adjusting entry for the year ended December 31, 2021.
    ▪ Journal entry Debit Credit
    ▪ Dec. 31,2021 Depreciation Expense- Service Vehicle P 50,000
    Accumulated Depreciation – Service Vehicle P 50,000

    ▪ Using the straight-line method in computing for the depreciation of the service vehicle for the period is Php
    50,000.00.
    ▪ Asset Cost Php 160,000.00
    ▪ Less: Estimated Salvage Value 10,000.00
    ▪ Depreciable Cost 150,000.00
    ▪ Divided by: Estimated Useful Life 3 years
    ▪ Depreciation Expense for the Year Php 50,000.00
    ▪Case No. 11: The owner of RDS Company paid Php
    160,000.00 cash to purchase a delivery van
    (surplus) on January 1. The van was expected to
    have a three-year life and a Php 10,000.00
    salvage value. Depreciation is computed on a
    straight-line basis. Prepare the adjusting entry for
    the month ended January 31, 2021

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