Professional Documents
Culture Documents
Expenses xxx
Expenses Payable xxx
Example 1
The company received a Maynilad bill in the amount of 9,800 on December 26, 2018. The company
intends to pay on January 8, 2019.
Analysis: This is liability on the part of the company because the Maynilad bill is for the month of
December but the company has not yet paid for it. Hence, a liability on the part of the company should
be recognized at the end of the reporting period.
Example 2
Analysis: This is a liability on the part of the company because the employees have already worked for
this but the company has not yet paid their salaries. Hence, a liability on the part of the company should
be recognized at the end of the accounting period.
Exercise Problems
1. Workers’ salary for the six-day week is 4,800, payable every Saturday. December 31 is a
Thursday.
2. Water bill received December 26 in the amount of 890 will be paid January 7 of the following
year.
Accrued Income is income already earned but not yet received.
A one-year, 6% note receivable in the amount of 200,000 was received on January 1, 2018. The interest
and the principal are payable on maturity date. Give the Adjusting Journal Entry on June 30, 2018.
Computation
Analysis: The note receivable bears interest at 6% per annum. The interest will be received after one
year on January 1, 2019. However, the note has already earned half – year interest on June 30, 2018 in
the amount of 6,000 although this interest has not yet been received. Hence, an adjusting journal entry
is necessary to recognize the interest earned on the notes receivable for 6 months, that is, from January
1 to June 30, 2018.
Exercise Problems
1. On November 15, Moringa Co. received a 90-day, 120,000, 10%, note. Record the interest due
on the note at the end of December 31.
2. Dugas Realty sold the house and lot of Ms. Sue Gapa for 25,000,000. According to their
agreement, Dugas Corp. is entitled to a 2% commission from Ms. Sue Gapa on the sale. As of
December 31, Dugas Corp. has not received a check for the commission from Ms. Sue Gapa.
(Record the accrual on the house and lot on the books of Dugas Realty.)
Bad Debts/ Doubtful Accounts/ Uncollectible Accounts are losses due to uncollectible accounts.
Example 1
Accounts receivable shows a balance of 100,000. It is estimated that 8% of this is uncollectible. Give the
adjusting journal entry on December 31, 2018 for the provision of the estimated uncollectible account.
Example 2
Note: The Required allowance for doubtful accounts is 8,000 (100,000 x 8%). However, per general
ledger, the allowance for doubtful accounts already shows a balance of 1,000. An adjusting Journal to
bring the balance of the allowance for doubtful accounts to the required balance of 8,000 is necessary.
1. Accounts Receivable has a balance of 78,000. It is estimated that 3% of this will be uncollectible.
2. Accounts Receivable and its corresponding allowance have a balance of 229,000 and 5,000,
respectively. It is estimated that 7.5% of this will be uncollectible.
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:
Cost xxx
Less: Salvage Value (xxx)
Depreciable Cost xxx
Divided by: Useful Life xxx
Annual Depreciation xxx
The process of recording depreciation expense does not directly charge depreciation to the asset
account. The charge is recorded in a contra-asset account called accumulated depreciation. The use of
this account allows the original cost of the asset and the related accumulated depreciation account to
be shown in the balance sheet. The balance of the accumulated depreciation is deducted from the cost
of the asset to get the carrying amount of the asset.
Example
A building with an estimated useful life of 30 years finished construction on June 1, 2018. The cost of
building is 8.8 million pesos with an estimated salvage value of 300,000.
Computation:
Cost 4,800,000
Less: Salvage Value (300,000)
Depreciable Cost 4,500,000
Divided by: Useful Life 30yrs
Annual Depreciation 150,000
Note: What you have gotten is the annual depreciation. Since the building was completed on June 1, you
will have to apportion the annual depreciation of 150,000 by dividing it by 12 to get the monthly
depreciation. Multiplying by 7 months, you get the depreciation of the building from June 1 to Dec. 31,
2018.
Cost 4,800,000
Less: Accum. Depn 87,500
Carrying Amount 4,712,500
Exercise Problems
Given the following cases, prepare adjusting journal entries on December 31, 2018. Presented below are
the non-current assets of Snoopy Company.