Accrued Income

Debit: Asset account (RECEIVABLE) / Credit: Income

account
Income already earned but were not collected.
Applicable to Interest and Salaries problem.

A.Sample situation:
Fees to be earned the following month
Fees earned but unbilled
Rent revenue earned but not yet received

B. Sample problem:
The company holds a P60,000, 12%, 6-month note
receivable dated October 1, 2015 from a customer.
The interest is collectible on maturity date.

Compute: Interest = Principal x Rate x Time

P60,000 x .12 x 3/12 = P1,800
AE: Interest Receivable P1,800
Interest Income P1,800
 Accrued Expense
Debit: Expense account / Credit: Liability account
(PAYABLE)
Expense that is already expired but not yet paid.

A.Sample situation:
Utilities owed to be paid the following month
Taxes owed to be paid in the next period
Rent expense owed but not yet paid
Subscriptions received in advance by a magazine
publisher
Salaries owed but not yet paid
Unpaid wages

B. Sample problem:
The company pays all employees every Friday. The
total payroll for five day workweek ending January
3,2016 is P80,000.

Compute: I = P x R x T
P80,000 x 2/5 = P32,000

AE: Interest Expense P32,000

Interest Payable P32,000
On December 1, the company issued a 90-day, 12%
note for P200,000. The interest on the note is
payable on maturity.

Compute: Interest = Principal x Rate x Time

P200,000 x .12 x 30/360 = P2,000

AE: Interest Expense P2,000

Interest Payable P2,000
 PREPAID EXPENSE
Advance payment

A. Sample Situation:
A three-year premium paid on a fire insurance policy
for the building
Cash received for use of land within the next six
months
Insurance paid

I. Asset Method:
Debit: Expense Account / Credit: Asset Account
(PREPAID)

1.1Sample Problem:
The XYZ Realty operates with an accounting period
that ends on December 31. The trial balance of the
company at the end of the current year 2014
follows:

Cash P1,300,000
Accounts Receivable 550,000
Prepaid Insurance 50,000
Office Equipment 750,000
Accum. Dep’n - Office Eqmnt P150,000
 Automobile 1,300,000
Accum. Dep’n - Automobile
260,000
Accounts Payable 110,000
Unearned Management Fees 120,000
Primo, Capital
840,000
Primo, Drawing 350,000
Management Fees Earned 3,600,000
Office Salaries Expense 450,000
Advertising Expense 100,000
Rent Expense 150,000
Telephone Expense 30,000
Utility Expense 50,000
P5,080,000 P5,080,000

Expired insurance during the year amounted to

P30,0000

AE: Insurance Expense P30,000

Prepaid Insurance P30,000

II. Expense Method:

Debit: Asset Account (PREPAID) / Credit: Expense
Account
(Same Trial Balance)
2.1 Sample Problem:
Advertising expense represents a five-month
advertising beginning October 01, 2014

AE: Prepaid Advertising P60,000

Advertising Expense P60,000
 UNEARNED REVENUE
Services collected but not yet rendered.

I. Liability Method
Debit: Liability Account (UNEARNED) / Credit:
Income Account

A.Sample Problem:

II. Income Method:

Debit: Income Account / Credit: Liability Account
(UNEARNED)

A.Sample Problem:
 DEPRECIATION
Debit: Depreciation Expense or Capital Account / Credit:
Accumulated Depreciation

Depreciation Formula = Cost – Salvage Value

(or Residual Value / Scrap Value)
Estimated Useful Value

Accumulated Dep’n is a Contra – Asset of Plant, Property

and Equipment (Building, Equipment, Furniture and Fixtures,
Improvements)

Historical Cost of Equipment P500,000 (unchangeable)

Accumulated
Dep.n 50,000
Book Value or Carrying Value P450,000

Methods: Aging of Receivables, % of Accounts Receivable, %

of Net Sales

A.Sample problem:
 DOUBTFUL ACCOUNTS
expense
Doubtful Account or Bad Debts

Debit: Doubtful Accounts Expense / Credit: Allowance for

Doubtful Account

A. Sample problem: