ADJUSTING

JOURNAL ENTRIES
LEARNING OBJECTIVES
• Define adjusting journal entries and know their
importance
• Describe the different types of adjusting journal
entries.
• Make the required adjusting journal entries for
the different accounts
 Adjusting Journal Entries
are entries used to update the
accounts prior to the
preparation of Financial
Statement because they affect
more than one accounting
period.
✓ PREPAYMENTS
✓ DEFERRALS
✓ ACCRUED EXPENSES
✓ ACCRUED INCOME
✓ BAD DEBTS / DOUBTFUL ACCOUNTS
✓ DEPRECIATION EXPENSE
PREPAYMENTS
These are expenses already
paid but not yet
incurred or used.
Example 1
On April 30, 2016, X Co. paid P36,000 worth of insurance
premium for two years. Give the Adjusting Journal Entry on June
30, 2016.
Journal Entry upon payment on April 30, 2016
Prepaid Insurance 36,000
Cash 36,000
Adjusting Journal Entry at the end of the accounting period June 30, 2016
Insurance Expense 3,000
Prepaid Insurance 3,000
Example 2
On September 1, 2016, X Co. paid a one-year advance rent for
P30,000. Give the Adjusting Journal Entry on December 31, 2016.
Journal Entry upon payment on September 1, 2016
Prepaid Rent 30,000
Cash 30,000
Adjusting Journal Entry at the end of the accounting period
December 30, 2016
Rent Expense 10,000
Prepaid Rent 10,000
Example 3
Supplies account showed a balance of P4,000. Supplies used
during the year amounted to P2,300. Give the Adjusting
Journal Entry on December 31, 2016.

Adjusting Journal Entry on December 30, 2016

Supplies Expense 2,300
Supplies 2,300
Example 4
Supplies account on January 1, 2016, showed a balance of
P8,000. On December 31, 2016, supplies on hand amounted
to P3,500.

Adjusting Journal Entry on December 30, 2016

Supplies Expense 4,500
Supplies 4,500
 DEFERRALS
Unearned or Deferred
Income is income already
received but not yet earned.
Example 1
On August 1, Dr.Yee received P90,000 for dental fees to be
rendered in the next 6 months. Give the adjusting journal entry at
the end of September.
Journal Entry upon receipt of cash on August 1
Cash 90,000
Unearned Dental Fees 90,000
Adjusting Journal Entry on September 30
Unearned Dental Fees 30,000
Dental Fees 30,000
Example 2
On December 1, 2016, Petit Co. received P48,000 amount of
advanced rentals for 6 months. Give the adjusting journal entry on
December 31, 2016.
Journal Entry upon receipt of cash on December 1
Cash 48,000
Unearned Rent Income 48,000
Adjusting Journal Entry on December 31
Unearned Rent Income 8,000
Rent Income 8,000
ACCRUED EXPENSE
These are expenses
already incurred or
used, but not yet paid.
Example 1
The company received a Maynilad bill in the amount of
P9,800 on December 26, 2016. The company intends to pay
on January 8, 2017.

Adjusting Journal Entry on December 31, 2016

Utilities Expense 9,800
Utilities Payable 9,800
Example 2
Unpaid salaries at the end of December 31,
2016 amounted to P18,800.

Adjusting Journal Entry on December 31, 2016

Salaries Expense 18,800
Salaries Payable 18,800
ACCRUED INCOME
These are income already
earned but not yet
received.
Example 1
A one-year, 6% note receivable in the amount of P200,000
was received on January 1, 2016. The interest and principal
are payable on maturity date. Give the adjusting journal entry
on June 30, 2016.

Adjusting Journal Entry on June 30, 2016

Interest Receivable 6,000
Interest Income 6,000
 BAD DEBTS/
DOUBTFUL ACCOUNTS
These are losses due to
uncollectible accounts.
Example 1
Accounts Receivable shows a balance of P100,000. It is
estimated that 8% of this is uncollectible. Give the adjusting
journal entry on December 31, 2016 for the provision of the
estimated uncollectible accounts.

Adjusting Journal Entry on December 31, 2016

Bad Debts Expense 8,000
Allowance for Bad Debts 8,000
Example 2
Accounts Receivable shows a balance of P100,000. It is
estimated that 8% of this is uncollectible. Allowance for Bad
Debts per general ledger ha a balance of P1,000. Give the
adjusting journal entry on December 31, 2016 for the
provision of the estimated uncollectible accounts.

Adjusting Journal Entry on December 31, 2016

Bad Debts Expense 7,000
Allowance for Bad Debts 7,000
DRILLS
 DEPRECIATION
EXPENSE
It is the allocation of plant asset cost
over its estimated useful life. This is
expense allotted for the wear and
tear, plant, and equipment due to
passage of time.
 THREE FACTORS CONSIDERED IN COMPUTING
DEPRECIATION EXPENSE

1. Cost is the purchase price of the depreciable assets.

2. Salvage Value is the estimated value of the asset at the
end of its useful life.
3. Estimated Useful Life, as name connotes, is not an
exact measurement but merely an estimation of the
number of years an asset can be useful to the entity.
 The FORMULA for computing
ANNUAL DEPRECIATION
Cost P xx
Less: Salvage Value (xx)
Depreciable Cost P xx
Divided by: Est. Useful Life xx
ANNUAL DEPRECIATION P xx
Example 1
A Building with an estimated useful life of 30 years finished
construction on June 1, 2016. The cost of building is
4,800,000 with an estimated salvage value of P300,000. Give
the adjusting journal entry on December 31, 2016 to record
depreciation of the building.

Adjusting Journal Entry on December 31, 2016

Depreciation Expense 87,500
Accumulated Depreciation 87,500