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Basic Accounting Entries

Debit/Credit
Adjusting entries
UND E RSTAND ING AC COUNTING

BY: TRI STAN IAN C RISTOBAL

Accounting Equation

Assets = Liabilities + Capital

Debit and Credit

A debit is an accounting entry that either increases
an asset or expense account, or decreases a
liability or equity account. It is positioned to the
left in an accounting entry.

A credit is an accounting entry that either

increases a liability or equity account, or decreases
an asset or expense account. It is positioned to the
right in an accounting entry.

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Keys to Understand Debit and Credit

What's going on?
What accounts are affected?
How are they affected?
Is the Left and Right Equals?
Does my analysis make sense?

Accounting Entry
An accounting entry is a formal record that documents a transaction.
An accounting entry is made using the double entry bookkeeping system, which
requires one to make both a debit and credit entry, and which eventually leads
to the creation of a complete set of financial statements.

Accounting Entries
Jan 2 - Invested P400,000 as start up capital
Jan 4 - Received cash borrowed from the bank as additional capital, P100,000
Jan 4 - Purchased supplies for use in the business P2,000
Jan 5 - Paid one year advance rent, P72,000
Jan 7 - Purchased 15 units for computer, P300,000
Jan 12 - Bought various chairs and tables from Fine Co, P20,000. Terms: n/30
Jan 14 - Received cash from clients, P22,000
Jan 15 - Paid the salary of two shop aides, P6,000
Jan 17 - Sent a bill to A Trading for computer service rendered, P9,000
Jan 18 - Owner, withdrew P2,000 cash for personal use
Jan 20 - Paid the account with Fine Co
Jan 22 - Received a check from A Trading as settlement of its account
Jan 30 - Received a bill from Meralco, P10,000
Jan 30 - Owner made additional investment P50,000

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Accounting Entries and T- Account

TFC Company opened on May 1 by Manny Pacquiao The following transactions occurred during
May.
May 1 – Invested P1,000,000 cash in the business, P200,000 Production Equipment, and
P300,000 worth of inventory.
May 2 – Purchased Land of P380,000 that includes P200,000 Building
May 5 – Paid the subscription for a year in a magazine advertisement amounting to P24,000.
May 6 – Paid cashP12,000 for a one year insurance policy
May 10 – Purchased delivery equipment amounting to P240,000, payable in 30 days, 5 year
useful life
May 18 – Billed customer amounting to P1,000,000, collectible in 30 days.
May 19 – Manny Pacquiao withdraw P5,000 for personal use
May 25 – Paid P16,000 salaries
Requirement:
1. Journalize the transactions

Accounting Equation and T – Account

Explained

Assets = Liabilities + Capital

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ADJUSTING ENTRIES
An adjusting journal entry is an entry in a company's general ledger that occurs at the end of an
accounting period to record any unrecognized income or expenses for the period.
When a transaction is started in one accounting period and ended in a later period, an adjusting
journal entry is required to properly account for the transaction.
Adjusting journal entries can also refer to financial reporting that corrects a mistake made
previously in the accounting period.

TYPES OF ADJUSTING ENTRIES

Accruals - Accruals are revenues and expenses that have not been received or paid,
respectively, and have not yet been recorded through a standard accounting
transaction.

Deferrals - Deferrals refer to revenues and expenses that have been received or paid in
advance, respectively, and have been recorded, but have not yet been earned
or used. Unearned revenue, for instance, accounts for money received for
goods not yet delivered.

Estimates - Estimates are adjusting entries that record non-cash items, such as
depreciation expense, allowance for doubtful accounts, or the inventory
obsolescence reserve.

CONSIDERATIONS
Assets = Asset Method or Expense Method
Revenues = Income Method or Liability method
Accrual of Expenses = Interest, Salaries, Doubtful
Account Expenses
Accrual of Revenues = Interest Receivable
Assets Depreciation
Corrections

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Examples of Adjusting Entries

Jan 1 – Acquired insurance policy P120,000 for 5 years.
Jan 1 – Purchased P20,000 worth of supplies.
Mar 1- Receive advance 3 year worth of sponsorship amounting to P36,000.
Aug 1 – acquired 2 delivery truck amounting to P4,500,000. Estimated useful life is 5 years. The
entry made P540,000.
Sept 1 – P35,000 cash collected and posted to Debit to Cash and Credit to Revenue instead of
Receivable. The error was discovered on September 28 upon customer’s verification of his
account.
Dec 31 – Of the total P20,000 purchased supplies, the unused supplies is P4,000

Application of Adjusting Entries

Jan 2 - Invested P400,000 as start up capital.
Jan 4 - Received cash borrowed from the bank as additional capital, P100,000. Proceeds from P100,000 is P95,000.
Jan 4 - Purchased supplies for use in the business P2,000. The company used Asset Method instead of Expense Method.
Jan 5 - Paid one year advance rent, P72,000
Jan 7 - Purchased 15 units for computer, P300,000. Useful life is 3 years and using straight line method
Jan 12 - Bought various chairs and tables from Fine Co, P20,000. Terms: n/30. Useful life is 3 years and using straight line
method
Jan 14 - Received cash from clients, P22,000
Jan 15 - Paid the salary of two shop aides, P6,000
Jan 17 - Sent a bill to A Trading for computer service rendered, P9,000
Jan 18 - Owner, withdrew P2,000 cash for personal use
Jan 20 - Paid the account with Fine Co
Jan 22 - Received a check from A Trading as settlement of its account
Jan 30 - Received a bill from Meralco, P10,000
Jan 30 - Owner made additional investment P50,000
Jan 31 – Based on business registration, the P400,000 capital was P300,000 coming from owner, and P100,000 loan from
personal friend.

Don’t FORGET these Adjusting Entries

1. Correcting Entries
2. Accrual and cash basis
3. Prepayments/Insurance/Supplies – (Recorded Cost) Asset/Expense Method)
4. Unearned Revenues – Deferral. Cash Received but revenues not earned. (Income/Liability
Method)
5. Accrued Expenses – Unrecorded Expenses. Accrual of Interest, Accrual Of Salaries, Doubtful
Account Expenses
6. Accrued Revenues – Unrecorded Revenues. Interest Income
7. Depreciation – Based on date of purchased, useful life, cost

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End