Adjusting Entries

Objective: Entries
 To adjust the amounts of the accounts.
 To have proper valuation of asset and liabilities at the year end.
 To omit undervaluation and overvaluation of accounts.
Dr. Cr.
Adjusting Entry Diagram

Asset Real Nominal

Accruals
“paid”
Liabilities Nominal Real

Real Liabilities Asset

Deferrals
“unpaid”
Nominal Asset Liabilities
Adjusting
Entry
Initial Entry

Depreciation Nominal Real

Beg. Bal. Inc. Sum. Beg. Bal

Inventories

End. Bal. End. Bal. Inc. Sum.

How to use the diagram?

1. Choose the type of entry to be made (accruals, deferrals, depreciation, depreciation &
inventories).
2. Then follow the diagram lines (in accruals: if the adjustment pertains to an asset or a liability; in
deferrals: if the initial entry was recorded for a real account, the adjusting entry is to decrease
the amount of real account and increase in nominal account by the amount of nominal account,
on the other hand, if recorded initially a nominal account, the adjusting entry is to decrease the
amount of nominal account and increase in real account by the amount of real account).
3. Record the necessary adjusting entry.

Real accounts – balance sheet accounts [asset, liabilities & capital accounts (not including withdrawals)]
Nominal accounts – income statements accounts (expenses, liabilities and withdrawals accounts)

Prepared by: Raniel R. Ramilo (09099693542)August 5, 2010