Fundamentals of Accountancy Business

Learning Area Grade Level 11

W6 Quarter
and Management 1
FOURTH Date

I. LESSON TITLE Adjusting Entries

II. MOST ESSENTIAL LEARNING
Prepare adjusting entries (ABM_FABM11-IVe-j -39)
COMPETENCIES (MELCs)
III. CONTENT/CORE CONTENT Accounting Cycle of a Merchandising Business
IV. LEARNING PHASES AND ACTIVITIES
I. Introduction (Time Frame: 10 minutes)
Good day learners! Welcome to another learning experience. Have you ever wondered what is done in the
preparation of adjusting entries. In today’s lesson, we will find out how to prepare adjusting entries.
By the end of our topic, you should be able to:
1. recognize and analyze required adjustments,
2. prepare adjusting entries, and
3. value accuracy in performing adjusting entries.
D. Development (Time Frame: 120 minutes)
Let us begin with your Pre-Test. Read each question carefully and write your answer in your accounting journal.
1. What is done in the preparation of adjusting entries?
A. updating of the balances of some accounts
B. correcting of errors and omissions on some accounts
C. splitting or mixed account into its real and nominal components
D. all of the choices
2. What is the purpose of a merchandise inventory account?
A. to account for returned or damaged merchandise
B. to account for the sale of merchandise at the sales price
C. to account for the cost of merchandise sold
D. to account for the value of merchandise held for sale
3. What type of account is the Cost of Goods Sold account?
A. Revenue account B. Liability account
C. Asset account D. Expense account
4. What type of account is a Sales account in a merchandising business transaction?
A. Revenue account B. Liability account
C. Asset account D. Expense account
5. What type of account is a Merchandising Inventory account in merchandising business transactions?
A. Revenue account B. Liability account
C. Asset account D. Expense account

Need for a Physical Count

In the periodic inventory system, purchases on merchandise are accumulated in the purchases account. During the accounting period, no
entry is made to the merchandise inventory account such that its balance at the end of the period, before adjusting and closing entries, is the same
as the beginning inventory. With no perpetual record of the cost of sales during the period, the only way to obtain the cost of the ending inventory
is to make a physical count. A reliable physical count is very significant because the ending inventory amount affects both the income statement
and the balance sheet.
It should be noted that the ending inventory amount is needed in the computation of the cost of goods sold. To recapitulate, ending
inventory is deducted from goods available for sale to obtain the cost of goods sold. The total cost of inventory is the ending inventory; this
amount will appear as a deduction in the cost of goods sold section of the income statement and as a current asset in the balance sheet.
Beginning merchandise inventory and ending merchandise inventory are the two things involved in the preparation of adjusting entry on
inventory items of a merchandising business. When direct extension method is used in the adjustments on the beginning and ending merchandise
inventories; beginning merchandise inventory becomes a cost while ending merchandise inventory becomes an asset (refer to Exhibit 1). While
in the adjusting entry method of inventories of a merchandising business, Cost Of Goods Sold (COGS) cannot be computed without first
computing the cost of ending inventory as emphasized under the periodic system of inventory (refer to Exhibit 2).

Using your Unadjusted Trial Balance on your Learning Task 2: LeaP Week 5, let us do the following adjustments for the month of June 2018:
1. Merchandise inventory at June 30 is determined to be P68,720, based on physical count (use direct extension method).
2. Salaries incurred in June but which remain unpaid as of June 30 amounted to P10,000.
3. Store supplies used for the month of June totaled P4,900.
4. Store equipment is estimated to have a salvage value of P10,000 and useful life of six years.

1. 10 Column Worksheet
Account Titles Unadjusted Trial Adjustments Adjusted Trial Income Statement Statement of
Balance Balance Financial Position
Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Cash 227,200 227,200 227,200
Merchandise 50,000 50,000 50,000 68,720 68,720
Inventory
Exhibit 1
As you have noticed, the amount of Merchandise Inventory remains the same up to the Income Statement column. Simply because you have to reflect the total
amount of COGS under Income Statement. Beginning merchandise inventory amounted to 50,000 and ending merchandise inventory amounted to 68,720.

Adjusting Entry Method vs Closing Entry Method

Adjusting Entry Date Particulars Ref. Dr Cr

Method
June 30 Income Summary 180 50,000
Merchandise Inventory, June 1 041 50,000
To close Beginning Merchandise Inventory
Merchandise Inventory, June 30 041 68,720
Income Summary 180 68,720
To record Ending Merchandise Inventory

Exhibit 2

Closing Entry Date Particulars Ref. Dr Cr

Method
June 30 Income Summary 180 XXX
Merchandise Inventory, June 1 041 50,000
Temporary Accounts with Debit Balances XXX
To close temporary accounts with debit balances and to
remove beginning inventory

Merchandise Inventory, June 30 041 68,720

Temporary Accounts with Credit Balances XXX
Income Summary 180 XXX
To close temporary accounts with credit balances and to establish
ending inventory

Notice that in both methods, merchandise inventory is credited for the beginning balance and debited for the ending balance and that the opposite entries are made to
the income summary.

This is a simple guide on how to accurately analyze adjusting entries.

 Required Adjustment
2. Salaries incurred in June, but which remain unpaid as at June 30 amounted to P10,000. (none)
Original Transaction

Initial Entry Made (none)

Analysis Salaries amounted to P10,000 need to record for the month of June

Adjusting Entry Date Particulars Ref. Dr Cr

June 30 Salaries Expense 132 10,000
Salaries Payable 075 10,000
To record accrued salaries expense

Now, let us talk about the Worksheet

The worksheet is not a permanent account. It is not a part of a journal or ledger. It is a device used for easy preparation of adjusting
entries and financial statements. It is a multi-column sheet or a computer spreadsheet where the accountant writes, in brief, information necessary
for the preparation of adjusting entries and financial statements.
Exhibit 3 - 10 Column Worksheet
Account Titles Unadjusted Trial Adjustments Adjusted Trial Income Statement of
Balance Balance Statement Financial Position
Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Cash 227,200 227,200 227,200
Merchandise 50,000 50,000 50,000 68,720 68,720
Inventory
Store Supplies 6,300
Store
Equipment 64,000
Accounts
Payable 40,100
L, Capital 352,000
L, Drawing 6,000
Sales 45,000
Sales Returns
and Allowances
3,000
Sales Discount 280
Purchases 51,000
Purchase
Returns and
Allowances 3,000
Purchase Discount
280
Freight In 800
Utilities Expense
11,000
Rent Expense 20,000
Freight Out 800
Salaries
Expense 10,000 10,000
Salaries
Payable 10,000 10,000
Add new
accounts from
adjusting entries
440,380 440,380 ?
Net income/loss
? ? ? ?
Enter balances from Enter Adjusting Enter Adjusted Relevant adjusted balance Relevant adjusted balance
ledger accounts to Trial Entries. No adjusting Balance. to Income Statement to Statement of Financial
Balance. entry is made for (Revenue and Expense Position (Assets,
merchandise inventory Account) Liabilities, and Capital)
because
the closing entry
method was used.
 E. Engagement (Time Frame: 90 minutes)
“John 17:17 Sanctify them through thy truth: thy word is truth”
Learning Task 1 – Analysis of Adjustments
Directions: Make an analysis of the remaining adjustments for L Company for June 2018. Write your answer in your accounting journal.

Required Adjustment 3. Store supplies used for the month of June totaled P4,900.

Original Transaction

Initial Entry Made

Analysis

Adjusting Entry Date Particulars Ref. Dr Cr

Required Adjustment 4. Store equipment is estimated to have a salvage value of P10,000 and useful life of six years.

Original Transaction

Initial Entry Made

Analysis

Adjusting Entry Date Particulars Ref. Dr Cr

A. Assimilation (Time Frame: 30 minutes)

Learning Task 2– Prepare 10 Column Worksheet
Directions: After preparing L Company’s adjustments for June 2018, prepare a 10-column Worksheet. Complete the
information in Exhibit 3. Write your answer in a 10-column worksheet or you may improvise a 10-column worksheet on a piece of bond paper and
paste it on your accounting journal.
V. ASSESSMENT (Time Frame: 30 minutes )
(Learning Activity Sheets for Enrichment, Remediation, or Assessment to be given on Weeks 3 and 6)
To test your understanding of the topics, please answer the question below in your accounting journal.
What do you think is the purpose of making adjustments on a worksheet?
VI. REFLECTION (Time Frame: 10 minutes)
● Communicate your personal assessment as indicated in the Learner’s Assessment Card.
Personal Assessment on Learner’s Level of Performance
Using the symbols below, choose one which best describes your experience in working on each given task. Draw it in the column for Level of
Performance (LP). Be guided by the descriptions below:
✰ - I was able to do/perform the task without any difficulty. The task helped me in understanding the target content/ lesson.
✔ - I was able to do/perform the task. It was quite challenging, but it still helped me in understanding the target content/lesson.
? – I was not able to do/perform the task. It was extremely difficult. I need additional enrichment activities to be able to do/perform this task.

Learning Task L Learning Task L Learning Task L Learning Task L

P P P P
Number 1 Number 3 Number 5 Number 7
Number 2 Number 4 Number 6 Number 8

VII. REFERENCES Joy S. Rabo, Herminigilda E. Salendrez,& Florenz C. Tugas. Fundamentals of Accountancy, Business and Management 1. Qu
Teaching Guide for Senior High School Fundamentals of Accountancy Business and Management 1. Commission on Higher E
QuexhubPERC Learning Portal

Josephine P. Canlas/ Adora G. del Mundo/ Cherie L.

Prepared by: Jennifer B. Fernandez Checked by:
Logatoc/ Feliz A. Tayao