Adjusting Journal Entries are entries used to update the accounts prior to the preparation of Financial Statements

because they affect more than one accounting period.

Transactions are apportioned properly between the accounting periods affected. The accounts affected are adjusted
so that there will be no overstatement or understatement of balance sheet items and income statement items.

Prepayments are expenses already paid but not yet incurred or used.

Following are the accounts subjected to adjustments:

Asset Method
Journal Entry upon payment
Prepaid Expense XXX

Cash XXX

Adjusting Journal Entry at the end of the accounting period

Expense XXX

Prepaid Expense XXX

Example 1
On April 30, 2016, X Co. paid P 36,000 worth of insurance premium for two years. Git the Adjusting Journal Entry on
June 30, 2012.

Example 2
On September 1, 2016, X Co. paid a one-year advance rent for P 30,000. Give the Adjusting Journal Entry on Dec.
31, 2016.

Example 3
Supplies account showed a balance of P 4,000. Supplies used during the year amounted to P2,300. Give the
Adjusting Journal Entry on Dec. 31, 2012.

DRILL
1. On July 31, 2016, Plush Co. paid P 49,200 amount of advanced office rentals for 6 months. Give the Adjusting
Journal Entry on December 31, 2022.
2. On April 1, York Co. paid P 43,200 amount of one year insurance for its factory. Give the Adjusting Journal Entry
on December 31.

1. On May 31, Ms. Tee paid 93,600 amount of one year rent for her apartment. Give the Adjusting Journal Entry on
December 31.

2. Last February 1, Mr. Tee Nick paid P 7,920 for a three-year monthly subscription of a business magazine. Give the
adjusting journal entry on June 30.

DEFERRALS
Unearned or deferred income is income already received but not yet earned.
Liability method

Journal entry upon receipt of cash

Cash XXX

Unearned Income XXX

Adjusting journal entry at the end of the accounting period

Unearned Income XXX

Income XXX

To record earned portion of the liability.

Example 1
On August 1, Dr. Yee received 90,000 for dental fees to be rendered in the nest months. Give the adjusting journal
entry at the end of Sept.

Example 2

On December 1, 2016, Petit Co. received $ 48,000 amount of advanced rentals for 6 months. Give the Adjusting
Journal Entry on December 31, 2022.

1. On August 31, 2016, Pee Co. received P66,000 amount of advanced rentals for 6 months. Give the Adjusting
Journal entry on December 31, 2022.
2. On May 1, Dr. Ma received P-81,000 for medical fees to be rendered in the next 9 months. Give the Adjusting
Journal Entry at the end of July.
3. On June 15, Mr. Gosh received 78,000 for one year lease for his vacant lot. Give the
adjusting journal entry on December 31.
4. Last March 1, Mega Zone Printers received 4,320 for a two-year monthly subscription of their men's
magazine. Give the adjusting journal entry on September 30.

ACCRUED EXPENSE

Accrued expenses are expenses already incurred or used, but not yet paid.

Adjusting Journal Entry at the end of the accounting period

Expenses XXX
 Expenses Payable XXX
To record unpaid expenses

Example 1
The company received a Maynilad bill in the amount of P9,800 on Dec. 26, 2022.
The company intends to pay on January 8, 2023.

Prepare the Adjusting Journal Entry for the following:

1. Workers' salaries for the six-day week is 4,800, payable every Saturday. December31 is a Thursday.
2. Water bill received December 26 in the amount of P-890 will be paid January 7 of the following year.

ACCRUED INCOME

Accrued income is income already earned but not yet received.

Income Receivable XXX

Income XXX

To record income earned

Example
A one-year, 6% note receivable in the amount of P200,000 was received on January 1,
2016. The interest and the principal are payable on maturity date. Give the Adjusting Journal Entry on June 30, 2016.

Prepare the Adjusting Journal Entry for the following:

1. On November 15, Moringa Co. issued a 90-day, 120,000, 10% note. Record the interest due on the note at
the end of December 31.

BAD DEBTS/ DOUBTFUL ACCOUNTS/ UNCOLLECTIBLE ACCOUNTS

Bad debts/ doubtful accounts are losses due to uncollectible accounts.

Adjusting Journal Entry at the end of the accounting period

Bad Debts Expense XXX

Allowance for Bad Debts XXX

To record estimated uncollectible accounts

Doubtful Accounts Expense XXX

Allowance for Doubtful Accounts XXX

To record estimated uncollectible accounts

OR
Uncollectible Accounts Expense XXX

Allowance for Uncollectible Accounts XXX

To record estimated 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 account.

Example 2
Accounts Receivable shows a balance of P 100,000. It is estimated that 8% of this is uncollectible. Allowance for Bad
Debts per general ledger has a balance of P 1,000.
Give the adjusting journal entry on December 31, 2016, for the provision of the estimated uncollectible account.
DEPRECIATION EXPENSE

Depreciation expense is the allocation of plant asset cost over its estimated useful life.
This is the expense allotted for the wear and tear of property, plant, and equipment due to passage of time.

The following are the three factors considered in computing the depreciation expense:

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

2. Salvage value is the estimated value of the asset at the end of its useful life.
3. Estimated useful life, as the name connotes, is not an exact measurement but merely an estimation of the
number of years an asset can be useful to the entity.

Example
A building with an estimated useful life of 30 years finished construction on June 1,
2016. The cost of the building is 4.8 million pesos with an estimated salvage value of
P 300,000.
Give the Adjusting Journal Entry on December 31, 2016, to record the depreciation of the building.