ST. RAPHAEL COLLEGE OF BUSINESS AND ARTS INC.

Manuel L. Quezon Ave. Poblacion Uno Real, Quezon

Email: st.raphael_college@yahoo.com
Tel. No.: (042) 536-6428 | CP no.: 0961-0645-030

SENIOR HIGH SCHOOL

DEPARTMENT

Quarter 4 – Module 12:

ADJUSTING JOURNAL ENTRIES,
TRIAL BALANCE, AND WORKSHEET
Learning Competencies:
32. Prepare adjusting journal entries
33. Prepare worksheet to reflect the proper amount in the financial
statements
34. Understanding the basic financial statements and its different
components.

S L M-SRCBAI PROPERTY
 SENIOR HIGH SCHOOL

Learning Objectives

This module was designed to help you demonstrate preparing adjusting journal
and adjusted trial balance entries to reflect the proper amounts revenues realized
and expenses incurred during a period and to show a fair measure of the assets,
liabilities, and owner’s equity.

Review Last Lesson

Accounting period is any length of time in which the life of the business is divided.
Such time may either be a monthly period, quarterly period, or a year.

At the end of each accounting period, financial reports are prepared to show the
results of the business operations. Such reports which always include the income
statement and balance sheet should reflect the revenues realized and expenses
incurred, and a fairly measure of the assets, liabilities, and owner’s equity.

Normally, at the end of each accounting period, there are several accounts that
need to be adjusted. What will happen if there will be no adjustments recorded at
the end of the accounting period?

LEARNING COMPETENCY NO. 32

Prepare adjusting journal entries

Lesson Proper

Accounts that need to be adjusted

1. Adjustment for the expiration of prepayments of expenses.
2. Adjustment for the realization of income collected in advance.
3. Adjustment for the accrual of expenses.
4. Adjustment for the accrual of income.
5. Provision for bad debts.
6. Provision for depreciation.

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Adjustment for the Expiration of Prepayments of Expenses

Prepaid expenses are expenses paid in advance. At the time of payment, the
account is an asset and as it is used it becomes an expense. The adjusting entry for this
account depends on the original entries made when it was paid.
There are two methods to be used:
1. Asset Method. Under this method, the original entry made is charged to an asset.
Example:
On November 1 of the current year, C Santos paid ₱30,000 for a three-month rental
of the office space.
Original Entry Adjusting Entry
Nov. 1 Prepaid Rent ₱30,000 Dec. 31 Rent Expense ₱20,000
Cash ₱30,000 Prepaid Rent ₱20,000

Analysis:
The ₱30,000 which was paid on November 1 is for a three-month rental of the
space i.e., for November, December, and January. As of December 31, the end of the
accounting period, only ₱20,000 or rental for two months have been incurred, so that
portion is an expense and the remaining ₱10,000 is still prepaid until January 31 of the
following accounting period.
2. Expense Method. Under this method, an expense account is charged when
payment is made. Using the same example, the following are the entries made:

Original Entry Adjusting Entry

Nov. 1 Rent Expense ₱30,000 Dec. 31 Prepaid Rent ₱10,000
Cash ₱30,000 Rent Expense ₱10,000

Analysis:

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The rental payment of ₱30,000 is paid for the months of November, December, and
January. As of December 31, only ₱20,000 or for two months rental have been incurred.
The remaining ₱10,000 is still prepaid until January 31 of the next accounting period.
Adjustment for the realization of Income Collected in Advance or Unearned Income
Unearned income arises when payment is received before goods are delivered or
before services are rendered.
There are two methods to be used: The income method and the liability method.
Again, the method to be used depends on the original entries made.
1. Income Method. Under this method, an income account is credited when cash is
received.
Example:
On November 1 of the current year, the business received ₱30,000 cash from the
tenant of the vacant space of the store.
Original Entry Adjusting Entry
Nov. 1 Cash ₱30,000 Dec. 31 Rent Income ₱10,000
Rent Income ₱30,000 Unearned Rent ₱10,000

Analysis:
The business received from a tenant a ₱30,000 cash advance rentals for the
months of November, December, and January. As of December 31, only two months rental
or ₱20,000 are already earned. The remaining ₱10,000 is still unearned until January 31
of the following accounting period.
2. Liability Method. Under this method, a liability account is credited upon receipt of
cash.

Original Entry Adjusting Entry

Nov. 1 Cash ₱30,000 Dec. 31 Unearned Rent ₱20,000
Unearned Rent ₱30,000 Rent Income ₱20,000

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Analysis:
As of December 31, the two-month rentals or ₱20,000 are already earned. Only
₱10,000 or the rental for the month of January is still unearned.
Accrual of Expenses
Accrued expenses are those expenses already incurred during the period but are
not yet paid or recorded.
At the end of the accounting period, the income statement should reflect such
expense and the balance sheet should reflect a liability account. The adjusting entry to
record accrual of expenses is debit the expense account and credit the liability account.
Example:
Office employees are prepaid every two weeks. On December 31, five days’ salaries
of an office employee for ₱300 per day have accrued.
Adjusting Entry:
Date Account Titles and Explanation F Debit Credit
Dec.3 Salaries ₱1,500
1
Accrued Salaries ₱1,500
To record five-day accrued salaries of an employee for
₱20/day.

Accrual of Income
Accrued income arises when goods have been delivered or services have been
rendered but no amount of payment has been collected or if there is payment, such
collection is not yet recorded.
In order to avoid understatement of income and assets, an adjusting entry is
needed at the end of the period.
The entry to adjust accrual of income is to debit the assets account and credit the
income account.
Example:
A tenant who occupies the right side of the shop space, is two months in debts as
of the balance sheet date. His monthly rental is ₱2,500 per month.
Adjusting Entry:
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Date Account Titles and Explanation F Debit Credit

Dec.3 Accrued Rent Income ₱5,000
1
Rent Income ₱5,000

Provision for Bad Debts

Usually most business firms extend credits to attract more customers and sell
more goods. However, not all credits extended are good or collectible. For a reason or
another, a certain percentage of these collectibles are not collected. For this reason, the
business should provide for such losses for non-collection of credits. This loss from
uncollectible accounts is called bad debts. Bad debts is a nominal account which must be
shown in the income statement at the end of the accounting period.
The entry to adjust bad debts is as follows:
Date Account Titles and Explanation F Debit Credit
Dec.3 Bad Debts ₱xxx
1
Allowance for bad debts ₱xxx

Bad debts or loss for bad debts is debited to show a decrease in proprietorship
account due to estimated loss.
Estimated Uncollectible Accounts or Allowance for bad debts which is a valuation
account is credited because it is a deduction from an asset account, Account Receivable.
In the balance sheet presentation, Estimated Uncollectible Account is deducted from
Accounts Receivable to show the net book value or the net realizable value of the accounts
receivable.
Illustration:
Accounts Receivable ₱xxx
Less: Allowance for bad debts ₱xxx
Net Realizable Value ₱xxx

There are several methods of estimating the probable losses from bad debts.
1. Increasing the accumulated allowance for bad debts by a certain percentage of the
accounts receivable.
2. Increasing the accumulated allowance for bad debts to a certain percentage of
accounts receivable.
Illustration:

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Debit Credit
Accounts Receivable ₱7,000
Allowance for Bad Debts ₱500

1. Increasing the allowance for bad debts by a certain percentage of the accounts
receivable.
What is the adjusting entry to increase the allowance for bad debts by 10% of
accounts receivable?
Computation: Bad debts estimate = ₱7,000 x.10 = ₱700
Adjusting Debit Credit
Entry:
Bad Debts ₱700
Allowance for Bad Debts ₱700
To record increase of allowance for bad
Balance Sheet
presentation: debts by 10% of accounts receivable

Accounts Receivable ₱7,000

Less: Allowance for bad debts ₱1,200
Net Realizable Value ₱5,800

2. Increasing the allowance for bad debts to a certain percentage of accounts receivable.
Using the same information in the pre-adjusted trial balance, what is the adjusting
entry to increase the allowance for bad debts to 10% of the accounts receivable?

Computation:
Bad debt estimate = ₱7,000 x .10 = ₱700
₱700 – 500 = ₱200

Adjusting Entry:
Debit Credit
Bad Debts ₱200
Allowance for Bad Debts ₱200
To record increase of allowance for bad
debts by 10% of accounts receivable
Balance Sheet presentation:
Accounts Receivable ₱7,000

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Less: Allowance for bad debts ₱700

Net Realizable Value ₱6,300

Provision for Depreciation

Assets which are relatively permanent in nature are fixed assets. They are used by the
business in its operation and are not intended for sale. The value of these assets, except
land decrease as times passes by due to the following reasons:
1. Wear and tear from operation
2. Inadequacy and obsolescence

An asset is said to be inadequate for the business if there is business expansion and
the asset can no longer fulfil the needs of the business.
It is said to be obsolete in the introduction of new models or inventions and the
business desires to replace the old asset with the new one.
The cost of the fixed asset is allocated to the number of its useful life. Depreciation is
the portion of the cost of the asset which is already used or consumed.

The following formula is used to compute for depreciation:

C – SV
D=
N

Where:
D = is the depreciation
C = is the original cost which includes the invoice price less discount plus other
costs
incurred before the use of the asset such as freight and installation.
S = is the salvage or scrap value. This is the amount wherein the asset can be sold
after its useful life.
n = is the number of estimated useful life
Example:
A delivery truck was purchased for ₱250,000. It is estimated to last 10 years after
which it shall have a value of ₱50,000. Compute for the depreciation.

C – SV
D=
N
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= ₱250,000 - ₱50,000
10 years
= ₱20,000/year
Adjusting Entry:
Debit Credit
Depreciation, delivery truck ₱20,000
Accumulated Depreciation, delivery truck ₱20,000

Depreciation is an expense account. Accumulated depreciation is a contra asset

account. A contra asset account is an account the balance is deducted from a related
asset to show the proper amount of such asset. The asset account is not credited to
preserve the historical cost of the asset. Instead, a contra asset account is credited
because depreciation is merely an estimate and to preserve the original cost of the asset.
Depreciation for a Fractional Period
If the purchase date of the asset does not coincide with the beginning of the
accounting period, such asset should be depreciated in a fraction of a period. Suppose the
accounting starts on January 1 and ends on December 31. On May 1 of the current year,
some pieces of furniture were purchased for ₱4,800. The asset is estimated to have 10
years of useful life. To compute for the depreciation on December 31 is:

C – SV
D=
n
= ₱4,800 – 0
10 years
= ₱480/year
The annual depreciation of the furniture is ₱480. To compute the depreciation from
May 1 to December 31, divide ₱480 by 12months to get the monthly depreciation. Then
multiply the monthly depreciation by 8 months, i.e., from May to December.
₱480 / 12 mos = ₱40/mo.
₱40 x 8 mos = ₱320

Adjusting Entry on the year of purchase:

Date Account Titles and Explanation F Debit Credit

Dec.3 Depreciation, Furniture ₱320

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1
Accumulated Depreciation, Furniture ₱320

In the following years the depreciation of the asset will be on a one whole year that
is ₱480/year.

LEARNING COMPETENCY NO. 33

Preparing worksheet to reflect the proper amount in the
financial statements

Lesson Proper

Posting the Adjusting Entries

After the adjusting entries have been recorded in the general journal, they should
be posted to the ledger to adjust the accounts. After accounts have been posted, an
adjusted trial balance should be prepared to prove the accuracy of the posting to the
ledger.
The Worksheet
A worksheet is prepared to facilitate the preparation of adjusting entries, financial
statements, and closing entries. It is prepared before the construction of financial
statements and before the adjusting entries are entered in the journal and posted.
The following steps are taken in preparing a worksheet:
1. Write the heading of the worksheet at the top of the paper with the following
information
Name of the business
Worksheet
For the Period of __________,20__
2. Provide the following column in the worksheet:

Adjusted Trial Income

Trial Balance Adjustments Balance Sheet
  Balance Statement
Account Debi
Title Debit Credit Debit Credit t Credit Debit Credit Debit Credit
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3. Copy the trial balance on the first two money columns.

4. Enter in the adjustments columns the adjusting entries. Before each corresponding
debit and credit amounts, write in parenthesis the same index number or letter.
Those accounts which are not found in the trial balance should be written below
the pre-adjusted trial balance.
5. Total the adjustment columns.
6. The adjusted trial balance columns is the total of the pre-adjusted trial balance and
the adjustment columns. If the amounts are both debit, add. Then extend the
amount to the debit column. Same procedure will be followed if the amounts are
both credits, only it will be extended to the credit column. If the amount is on debit
and one credit, subtract the smaller amount from the bigger amount, then extend
on the column of the bigger amount.
7. Add the adjusted trial balance columns to prove the equality of the debits and
credits.
8. The adjusted trial balances are extended to the balance sheet at income statement
columns. Assets, liabilities, and capital to the balance sheet columns and income
and expense to the income statement columns. Add these last four columns. Get
the difference of the debit and credit sides of the income statement and the
difference of the debit and credit sides of the balance sheet. The difference of both
should be equal, otherwise, an error or errors are committed.
If the credit total of the income statement is more than the debit total, the difference is a
net income. If the debit side is more than the credit side, the difference is a net loss. Write
the difference below the smaller sides.
9. Write in the column for account titles “Net Income” if the difference is a net income
or “Net Loss” if the difference is net loss.
10.Write the final total and double rule.

LEARNING COMPETENCY NO. 34

Understanding the basic financial statements and its different
components

Financial Statements

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Financial statements are the means by which the information accumulated

and processed in financial accounting is periodically communicated to the users of
the financial information.

COMPLETE SET OF FINANCIAL STATEMENTS

INCOME STATEMENT
A formal statement showing the performance of the enterprise for a given
period of time. Summarizes the revenues earned and expenses incurred for that
period of time
Pro forma Income Statement:

E.GARCIA REPAIR SHOP

Income Statement
For the month ended December 31,2014

Service Income xx
x
Less: Advertising x
x
Salaries and Wages x
x
Utilities Expense x
x
Rent Expense x
x
Repair Supplies Used x
x
Depreciation-Repair Tools x
x
Depreciation- Furniture and Fixtures x
x
Depreciation-Service Truck x
x
Interest Expense x xx
Px
Net Profit x

Statement of Changes in Owner’s Equity

- summarizes the changes that occurred in owner’s equity. This statement
is now a required statement (per Philippine Accounting Standards (PAS) No. 1)

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Proforma Statement of Changes in Equity

E.GARCIA REPAIR SHOP

Statement of Changes in Owner's Equity
For the month ended December 31,2014

E. Garcia, Capital xx
x
Add: Additional Investment x
x
Net Profit x xx
Total xx
(xx
Less: Personal )
Px
E. Garcia, Capital as of 12/31/2014 x

Balance Sheet is a statement that shows the financial position or condition of an

entity by listing the assets, liabilities and owner’s equity as at specific dates.

Pro forma Balance Sheet

E. GARCIA REPAIR SHOP
Balance Sheet
As of December 31, 2014

Asset
Current:
Cash x

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x
x
Accounts Receivable x
x
Repair Supplies x
x
Prepaid Advertising x
x
Total Current Assets x

Non-Current:
x
Repair Tools x
x x
Less: Accumulated Depreciation x x
x
Furniture’s and Fixtures x
x x
Less: Accumulated Depreciation x x
x
Service Truck x
x x
Less: Accumulated Depreciation x x
x
Total Non-Current Assets x
x
Total Assets x

Liabilities
x
Notes Payable x
x
Accrued Interest Payable x
x
Accrued Salaries and Wages x
x
Accrued Rent Expense x
x
Unearned Service Income x
x
Total Liabilities x

Owner's Equity
x
E. Garcia, Capital x
x
Less: E. Garcia, Personal x
x
Net Capital x
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x x
Add: Net Profit x x
x
Total Liabilities and Owner's Equity x

Statement of Cash Flows

Provides information about the cash receipts and cash payments of an
entity during a period. This statement shows the net increase or decrease in cash
during the period and the cash balance during the period.

Pro forma Statement of Cash Flows

E.GARCIA REPAIR SHOP

Statement of Cash Flows
For the month ended December 31,2014

Cash Inflows
Cash from Cash Sales xx
Collections of Receivables xx
Cash from Bank Loans xx  
Total Cash Inflows xx

Cash Outflows
Payment of Liabilities xx
Purchases xx
Payment of Expenses xx  
(xx
Total Cash Outflows )
Net Cash Inflows/Cash Outflows xx
Add: Cash Balance Beginning xx
Px
Cash Balance as of 12/31/2015 x

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Activity/ Exercise

1. Prepare adjusting journal entries for C. Rana Repair Shop

C. RANA REPAIR SHOP

Trial Balance
December 31, 2018

On December 31, the end of the accounting period, the following data were taken.
1. An actual count of repair supplies showed a balance of ₱850. ________
2. Repair tools are depreciated at 10% per annum. ________
3. Furniture and fixtures are estimated to have a useful life of 5 years while service trucks have a useful
life of 10 year. Both assets were bought in September of the current year. ________
4. A 10% interest has accrued on the payable. _________
5. Of the income received. ₱900 is applicable to the next accounting period.
6. Accrual of expenses: Salaries and wages ₱250; Rent ₱500 __________
7. The balance of the advertising expense account represents payment for five months. Paid on
September 1 of the current year. ________________.

Enrichment Activity
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Fundamentals of Accountancy, Business and Management 1

Grade 11 – MODULE NO. 12

Learner Name: _______________________________________ DATE: ___________

Grade & Section: _______________________________________ SCORE: __________

Prepare adjusting journal entries to reflect the proper amount in D. Quenaya’s

financial statements.
D. QUENAYA REPAIR SHOP
Trial Balance
November 30, 2018

Account No. Account Title Debit Credit

101 Cash ₱10,000
112 Accounts Receivable 2,320
126 Supplies 1,900
157 Equipment 9,000
201 Accounts Payable ₱5,500
206 Unearned Revenue 800
301 D. Quenaya, Capital 16,920
306 D. Quenaya, Drawing
426 Service Income
726 Salaries Expense
732 Utilities Expense

Transactions for the month of December

December 5 received cash from customer, ₱1,000
10 billed customer for service rendered, ₱8,000
15 paid salaries of employees, ₱2,000
16 ₱800 of the unearned revenue has been earned
20 payment of liabilities, ₱2,000
21 received cash from customers on account, ₱500
26 purchased supplies on account, ₱1,000
29 withdraw for personal use, ₱600
30 payment for utilities for the month ₱900
Required:
1. Prepare adjusting journal entries and date it correctly. ( 5 points for each entry)
2. Prepare a worksheet to come up with a correct financial statement for D. Quenaya
Repair Shop. (5 points each section)

Answer Key

2. Prepare adjusting journal entries for C. Rana Repair Shop

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C. RANA REPAIR SHOP

Trial Balance
December 31, 2018

On December 31, the end of the accounting period, the following data were taken.
8. An actual count of repair supplies showed a balance of ₱850. ________
9. Repair tools are depreciated at 10% per annum. ________
10. Furniture and fixtures are estimated to have a useful life of 5 years while service trucks have a useful
life of 10 year. Both assets were bought in September of the current year. ________
11. A 10% interest has accrued on the payable. _________
12. Of the income received. ₱900 is applicable to the next accounting period.
13. Accrual of expenses: Salaries and wages ₱250; Rent ₱500 __________
14. The balance of the advertising expense account represents payment for five months. Paid on
September 1 of the current year. ________________.

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References

● Ballada, W. Accounting Fundamentals Made Easy; DomDane Publishers & Made

Easy Books, 2019
● Arganda, A.M. Accounting Principles 1 Textbook/Workbook; National
Bookstore, 2007

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