NAME: BONAGUA RAYMART SECTION: I – C BSBA MM

1) What is adjusting entries?

 In accounting/accountancy, adjusting entries are journal entries usually made at
the end of an accounting period to allocate income and expenditure to the period
in which they actually occurred.

1) What are the purposes of adjusting entries?

 The purpose of adjusting entries is to convert cash transaction into the accrual
accounting method. Accrual accounting is based on the revenue recognition
principle that seeks to recognize revenue in the period in which it was earned,
rather than the period in which cash is received.

2) Give some example of usual adjustment at the end of accounting period

prior to preparation of Financial Statements.

3) Give atleast 2 examples of adjusting enrtry problems and prepare their

adjusting entries based on the following:
ASSET MEDTHOD
INITIAL ENTRY SUPPLY 18,000

CASH 18,000

ADJUSTING SUPPLY EXPENSES 3,000

ENTRY
 SUPPLIES 3,000

SUPPLY = 18,000 – 3,000

SUPPLIES = 15,000

SUPPLY EXPENSE = 3,000

b) prepaid expense using expense method

EXPENSE METHOD

SUPPLY EXPENSE 18,000

CASH 18,000

SUPPLIES 15,000

SUPPLIES EXPENSES 15,000

SUPPLY =15,000

SUPPLIES EXPENSES = 18,000 -15,000

SUPPLIES EXPENSES = 3,000

c) Unearned income using income method

Mr. Green Light, a commission agent, received $3,600 on 1 July 2016 as

a commission from a client. One-third of the commission received is in
respect of work to be done next year.
Required: Mr. Green Light prepares financial statements on 31
December each year. Make necessary journal entries in the books of
Green Light.
 Mr. Green Light will record the following journal entry at the time of the receipt of
cash:

DATE DESCRIPTION PR AMOUNT

2016 Dr Cr
JULY 01 3,600
CASH
COMMISSION REVENUE 3,600

On 31 December 2016, one-third of the commission revenue (3,600 × 0.33) will be

converted into unearned commission liability .

DATE DESCRIPTION PR AMOUNT

2016 Dr Cr
DECEMBER 1,200
COMMISSION REVENUE
31
1,200
UNEARNED COMMISSION

d) Unearned income using liability method.

Mr. Green Light will record the following journal entry at the time of the receipt of $3,600
in cash from his client:
 DATE DESCRIPTION PR AMOUNT
2016 Dr Cr

JULY 01 CASH
3,600

UNEARNED COMMISSION 3,600

One-third of the total amount received belongs to the next accounting period. Therefore,
only two-thirds of the unearned commission liability (3,600 × 0.66) will be converted into
commission revenue at the end of the accounting period.

DATE DESCRIPTION PR AMOUNT

2016 Dr Cr
DEC 31
UNEARNED COMMISSION 2,400

2,400
COMMISSION REVENUE