BSOA

Adjusting
Entries
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Ma'am Shie
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 Accounting Cycle
 1. Journalizing – The process of recording the transactions in the
journal/s(books of original entry)
 2. Posting – The process of transferring the entries in the
journal to the general ledger
 3. Preliminary Trial Balance (Unadjusted Trial Balance ) –
Prepared to check the accuracy of posting and to prove the
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equality of debits and credits.

 4. Adjusting Entries – Prepared at the END of the accounting
period to update the books.
 Accounting Cycle
5. Adjusted Trial Balance /Worksheet (Working Paper) – To facilitate the preparation of the Financial
Statements.
Showing the adjustments in the worksheet and then classifying all the accounts into Real accounts
(Balance Sheet accounts) and Nominal Accounts (Income Statement statement).
6. Financial Statements – Accounting reports prepared at the end of the accounting period.
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Income Statement (Statement of Comprehensive Income) , Balance Sheet (Statement of Financial Position)
, Statement of Changes in Owner’s Equity and Statement of Cash Flows.
COMPLETING THE ACCOUNTING PROCESS (CLOSING THE BOOKS)
 Accounting Cycle
7. Closing Entries – Entries Prepared at the end of the accounting period.
Nominal Accounts are closed by REVERSING the position of the accounts (accounts with debit balances
are credited and accounts with credit balances are debited)
Income and Expense Summary Account is used as balancing account (credit balance means NET INCOME,
debit balance means NET LOSS).
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 Closed to the Drawing Account of the owner

 Closed to the CAPITAL ACCOUNT of the owner
 Accounting Cycle
8. Post-Closing Trial Balance
Prepared after the closing entries
Trial Balance of all Real accounts
Real Accounts only (because nominal are already closed)
Basis for preparing the opening entry in the new books of accounts.
9. Ruling the Ledger (Closing the Books)
Books of accounts (journals and ledgers) are registered with the Bureau of Internal Revenue (year
to year basis)
Getting the total debits and credits of all6 the accounts and then double-ruling the totals.
10. Reversing Entries
 Reversing the Adjusting Entries
 Expense method (of prepayments)
 Income method (advance collections)
 Accrued Expenses
 Accrued Income
 To report all To report all
revenues earned expenses incurred
during the to produce the
revenues during the
Reasons to
accounting period
accounting period

Adjust the To report

accurately the
To report
accurately the

Trial balance
assets on the
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liabilities on the
balance sheet. Some balance sheet date.
may have been Expenses may have
USED UP during the been incurred but
accounting period not yet paid.
  To take up unrecorded income
and expense of the period

 To split “mixed accounts” into

their real and nominal elements.

Adjusting  Consist of:

Entries
 Accruals of Income and Expenses
 Deferrals of Income and Expenses
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(Prepaid Expense and Unearned
Income)
Adjusting entries  Depreciation and Bad Debts Expense
are like journal
entries but made  Application:
at the END of the  Entries involve at least 1 balance sheet
accounting period acct and one income statement acct
 Entries affect the statement of
comprehensive income for the period
 • CALENDAR PERIOD
• January 1-Dec 31
• Generally used
• FISCAL YEAR
ACCOUNTING • Any 12month other
than December
PERIOD 9 • Ex: Feb 1-January 31 ;
April 1-March 31
 • ACCRUAL BASIS
• Transactions are recorded WHETHER OR NOT
CASH HAS BEEN RECEIVED OR PAID
• CASH BASIS
• Transactions are NOT RECORDED UNTIL CASH is
RECEIVED or paid.
Cash Receipts are treated as Revenues, and Cash

ACCRUAL VS
Payments are handed as Expenses

CASH BASIS 10
 ACCRUALS VS CASH
BASIS
ITEMS ACCRUAL BASIS CASH BASIS
Revenue is When EARNED When COLLECTED
recognized
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Expense is When INCURRED When PAID
recognized
Accruals and RECOGNIZED Not RECOGNIZED
Deferrals
 ADJUSTING ENTRIES

 Deferrals
 Accruals  Deferred  Depreciation
 Accrued Expense and Bad
Income (Prepaid
Debts
Expense
 Accrued Expense
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 Deferred
Expense Income
(Unearned
Income)
 1 :
ST ACCRUALS
• Accrue – provision/to recognize (to accrue)
• ACCRUED REVENUE/INCOME – Income EARNED but NOT YET COLLECTED.

 Adjusting Entry:
Accrued (appropriate)receivable account xxx
Revenue Acct xxx “ACCRUE”
To recognize revenue earned means UNPAID
(if expenses), or
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UNCOLLECTED
ACCRUED EXPENSE – Expenses INCURRED but NOT YET PAID. (if income)

 Adjusting Entry:
Expense Acct xxx
Liability Acct xxx
To recognize expense incurred
 • ACCRUED REVENUE/INCOME
• Income already EARNED but NOT YET
COLLECTED

Example 1: On Dec 1,2021, SR Repair business

ACCRUED rendered a monthly service to a customer

amounting to P 20,000 with an agreement

REVENUE/
that the payment will be made next month.

INCOME 14
• ENTRIES
• December 31,2021
Accounts Receivable 20,000
An ASSET
Repair Service Income 20,000
(RECEIVABLE) To record repair service rendered for
December
 • ACCRUED REVENUE/INCOME
• Income already EARNED but NOT YET
COLLECTED

Example 2: On Dec 1,2021, SR Repair business

received a promissory note amounting to P
500,000 at 10% annual interest. No journal
entry was made in the general journal for the

ACCRUED interest income.

• Dec 1,2021

REVENUE/
Notes Receivable 500,000
Repair Service Income 500,000
To record repair service rendered

INCOME
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Interest is computed as follows:

I=PRT
P500,000 x .10 x 1/12 = 4,167.67
• Adjusting entry:
• December 31,2021
Interest Receivable 4,167.67
Interest Income 4,167.67
To record int inc for december
 • ACCRUED EXPENSE
• Expenses Incurred but NOT yet PAID

Example: On December 2021, SR Repair

business received a Meralco bill for the month
of November and December. The bill is paid
every 15th of the following month.
The meralco bill contains P4,000 (November)
P3,000 (December)
ACCRUED
EXPENSE ENTRIES:
• December 15,2021
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Utilities Expense 4,000

A LIABILITY (Ex: Cash 4,000
Utilities payable) To record paid bill for November
• December 31,2021
Utilities Expense 3,000
Utilities payable 3,000
To record bill for December not yet paid
 DEFERRALS
• Deferred – (PREPAID – If expenses) (pre-collected-if INCOME
• DEFERRED EXPENSE/PREPAID EXPENSE – Expenses NOT YET INCURRED but already
PAID.

ASSET METHOD EXPENSE METHOD

Initial journal entry:
Prepaid Asset xxx Expense Account xxx
Cash xxx 17
Cash xxx

Adjusting entry(end of acctng

period)
Expense Account xxx Prepaid Asset xxx
Prepaid Asset xxx Expense Account xxx
 DEFERRALS
• DEFERRED EXPENSE/PREPAID EXPENSE
Sample Transaction: On Dec. 1,2021 SR Repair service paid 3months rental for P15,000.
ASSET METHOD EXPENSE METHOD
Initial journal entry:
Prepaid Rent 15,000 Rent Expense 15,000
Cash 15,000 Cash 15,000
To record advance rental for 3mos. To record advance rental for 3mos.

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Adjusting entry(end of acctng period)

Rent Expense 5,000 Prepaid Rent 10,000
Prepaid Rent 5,000 Rent Expense 10,000
To adjust the expense portion of To adjust the expense portion of
prepayment. prepayment.
 DEFERRALS
• DEFERRED REVENUE/UNEARNED INCOME – Income NOT YET EARNED but already
collected. (LIABILITY)

LIABILITY METHOD INCOME METHOD

Initial journal entry:
Cash xxx Cash xxx
Deferred Income/Unearned Rev 19
xxx Revenue Account xxx

Adjusting entry(end of acctng period)

Deferred Inc/Unearned Rev xxx Revenue Account xxx
Revenue Account xxx Deferred Inc/Unearned Rev xxx
 DEFERRALS
• DEFERRED REVENUE/UNEARNED INCOME
Sample Transaction: On Dec. 1,2021 SR Company received 3months rental for
P30,000. INCOME METHOD LIABILITY METHOD
Initial journal entry: Dec 1,2021
Cash 30,000 Cash 30,000
Rental Income 30,000 Deferred/Unearned Rev 30,000
To record rental income for 3mos. To record the advance

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Adjusting entry(end of acctng

period) Dec 31,2021
Rental income 20,000 Deferred/Unearned Inc 10,000
Deferred/Unearned Inc Rental income 10,000
20,000
To record the unearned rental To record the earned portion of
income. unearned rev.
 Thank You!
Do you have any questions for me before we go?
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