ADJUSTING

JOURNAL ENTRIES

JMH
Adjusting Journal Entries (AJE)
- are made up to update the
accounts & bring them to their
correct balances
to update
- AJE to correct

- includes one nominal & one real

accounts
JMH
Types of AJE:
Depreciation
D Doubtful Accounts/Bad Debts
Accrued Income
A-Accruals
Accrued Expense

Deferred/Unearned Income
D-Deferrals
Prepaid Expense

JMH
Depreciation

- refers to allocation of cost to the

period in which asset is used

EOP: record Depreciation Exp.

AJE: Depreciation Exp. xx

Accumulated Depreciation xx
JMH
Depreciation

Step 1: Compute Annual Depreciation

= Historical Cost-Residual Value
Useful Life

Step 2: Prorate (if w/in the period)

Step 3: Record AJE

JMH
Depreciation
Example:
Rabiya Company acquired a delivery van for Php 40,000.00 on
April 1, 2021. The van can be used for 5 years. Record the adjusting
journal entry at the end of the period.

Step 1: Compute Annual Dep:

= 40,000-0 = 8,000 per year
5

Step 2: Prorate if w/in the period

8,000 x 9/12 = 6,000

Step 3: Record AJE

Depreciation Expense 6,000
Accumulated Depreciation 6,000

JMH
Depreciation
Example:
Sabo Organizers purchased an equipment costing P50,000 on July
1, 2021. The equipment has an estimated useful life of 10 years with
an estimated salvage value of P5,000. The adjusting entry required on
December 31, 2021 is.

Step 1: Calculate Annual Dep:

= 50,000-5,000 = 4,500 per year
10

Step 2: Prorate if w/in the period

4,500 x 6/12 = 2,250

Step 3: Record AJE

Depreciation Expense 2,250
Accumulated Depreciation 2,250
JMH
Doubtful Accounts/Bad Debts
- refers to portion of credit sales that the
company estimates as non-collectible

EOP: record Doubtful Account Exp.

AJE: Doubtful Account Exp. xx

Allowance for Doubtful Account xx

JMH
Doubtful Accounts/Bad Debts
Example:
Gray Electronic Repair Services estimates that Php 10,000.00 of its
credit revenue for the period will not be collected. The entry at the end
of the period would be:

Doubtful Account Expense 10,000

Allowance for Doubtful Accounts 10,000

JMH
Doubtful Accounts/Bad Debts
Example:
At the end of the year, Papasa A-Co. reports credit sales of
P1,000,000, 3% of which is estimated to be uncollectible. The adjusting
entry required at December 31, 2021 is:

Doubtful Account Expense 30,000

Allowance for Doubtful Accounts 30,000

JMH
Accruals & Deferrals (Steps in answering)

Step 1: Type of AJE

*Collected/Paid?
-not yet earned/incurred = DEFERRALS
-earned/incurred = NO AJE

*Not yet Collected/Paid?

-earned/incurred = ACCRUALS
-not yet earned/incurred = NO AJE
Step 2: Who are we?
-to determine if expense or income

Step 3: Method used? (For deferrals only)

JMH
Accruals & Deferrals (Steps in answering)

Step 4: EOP
- what will we record at the end of the period

Step 5: AJE

JMH
Accrued Income
- refers to income already earned but not
yet collected

EOP: record income earned

AJE: Receivable Account xx

Income Account xx

JMH
Accrued Income
Example:
Catriona Company lent Php 9,000 at 10% interest on December 1,
2021. The amount will be collected after 1 year. At the end of
December, no entry was made.

Step 1: Type of AJE:

not yet collected = Accruals

Step 2: Who are we?

Lender = Income; Accrued Income

Step 3: Method Used?

N/A

Step 4: EOP
= to record income earned
JMH
Accrued Income
Example:
Catriona Company lent Php 9,000 at 10% interest on December 1,
2021. The amount will be collected after 1 year. At the end of
December, no entry was made.

Step 5: AJE:
Annual Interest: 9,000 x 10% = 900
Prorate: 900 x 1/12 = 75

Interest Receivable 75
Interest Income 75

JMH
Accrued Income
Example:
Kaido Corporation lent P900,000 to another corporation on
November 1, 2021 and received a 6-month, 12% interest-bearing
note with a face value of P900,000. What adjusting entry should Kadio
make on December 31, 2021?

Step 1: Type of AJE:

not yet collected = Accruals

Step 2: Who are we?

Lender = Income; Accrued Income

Step 3: Method Used?

N/A

Step 4: EOP
= to record income earned
JMH
Accrued Income
Example:
Kaido Corporation lent P900,000 to another corporation on
November 1, 2021 and received a 6-month, 12% interest-bearing
note with a face value of P900,000. What adjusting entry should Kadio
make on December 31, 2021?

Step 5: AJE:
Annual Interest: 900,000 x 12% = 108,000
Prorate: 108,000 x 2/12 = 18,000

Interest Receivable 18,000

Interest Income 18,000

JMH
Accrued Expense
- refers to expense already incurred but not
yet paid

EOP: record expense incurred

AJE: Expense Account xx

Payable Account xx

JMH
Accrued Expense
Example:
Pia Company borrowed Php 6,000.00 at 12% interest on August 1,
2021. The amount will be paid after 1 year. At the end of December,
the end of accounting period, no entry was entered in the journal.

Step 1: Type of AJE:

not yet paid = Accruals

Step 2: Who are we?

Borrower = Expense; Accrued Expense

Step 3: Method Used?

N/A

Step 4: EOP
= to record expense incurred
JMH
Accrued Expense
Example:
Pia Company borrowed Php 6,000.00 at 12% interest on August 1,
2021. The amount will be paid after 1 year. At the end of December,
the end of accounting period, no entry was entered in the journal.

Step 5: AJE:
Annual Interest: 6,000 x 12% = 720
Prorate: 720 x 5/12 = 300

Interest Expense 300

Interest Payable 300

JMH
Accrued Expense
Example:
The Donquixote Enterprises pays its weekly salary of P100,800 for a
6-day work week ending on Saturday. The company follows the
calendar year ending on December 31, 2021. Assuming that December
31, 2021 falls on Thursday, the adjusting entry would be

Step 1: Type of AJE:

not yet paid = Accruals

Step 2: Who are we?

Employer = Expense; Accrued Expense

Step 3: Method Used?

N/A
Step 4: EOP
= to record expense incurred
JMH
Accrued Expense
Example:
The Donquixote Enterprises pays its weekly salary of P100,800 for a
6-day work week ending on Saturday. The company follows the
calendar year ending on December 31, 2021. Assuming that December
31, 2021 falls on Thursday, the adjusting entry would be

Step 5: AJE:
Weekly Salary: 100,800
Prorate: 100,800 x 4/6 = 67,200

Salaries Expense 67,200

Salaries Payable 67,200

JMH
Deferred/Unearned Income
- refers to income collected but not yet
earned
Method:
Liability Method Income Method
Original Cash xx Cash xx
Entry : Unearned Income xx Income account xx

EOP: -record income earned - record unearned income

(magkano na-earn) (magkano natira)

AJE: Unearned Income xx Income Account xx

Income Account xx Unearned Income xx

JMH
Unearned Income
Example:
On December 1, 2021, JMH Company collected from a tenant Php
60,000 as rental fee for three months starting December 1. The
company used liability account to record the transaction.

Step 1: Type of AJE:

collected = Deferrals

Step 2: Who are we?

Lessor/Owner = Income; Unearned Income

Step 3: Method Used?

Liability Method

Step 4: EOP
= to record income earned (magkano na-earn)
JMH
Unearned Income
Example:
On December 1, 2021, JMH Company collected from a tenant Php
60,000 as rental fee for three months starting December 1. The
company used liability account to record the transaction.

Step 5: AJE

Income Earned: 60,000 x 1/3 = 20,000

Unearned Rent Income 20,000

Rent Income 20,000

JMH
Unearned Income
Example:
On December 1, 2021, JMH Company collected from a tenant Php
60,000 as rental fee for three months starting December 1. The
company used income account to record the transaction.

Step 1: Type of AJE:

collected = Deferrals

Step 2: Who are we?

Lessor/Owner = Income; Unearned Income

Step 3: Method Used?

Income Method

Step 4: EOP
= to record unearned income (magkano natira)
JMH
Unearned Income
Example:
On December 1, 2021, JMH Company collected from a tenant Php
60,000 as rental fee for three months starting December 1. The
company used income account to record the transaction.

Step 5: AJE

Unearned Income: 60,000 x 2/3 = 40,000

Rent Income 40,000

Unearned Rent Income 40,000

JMH
Prepaid Expense
- refers to expense paid but not yet
incurred
Method:
Asset Method Expense Method
Original Prepaid Expense xx Expense Account xx
Entry : Cash xx Cash xx

EOP: -record expense incurred - record prepaid expense

(magkano nagamit) (magkano natira)

AJE: Expense Account xx Prepaid Expense xx

Prepaid Expense xx Expense Account xx

JMH
Prepaid Expense
Example:
JMH Company acquired a six-month insurance coverage for its
properties on September 1, 2021 for a total of Php 6,000.00. The
company used asset account in recording the transaction.

Step 1: Type of AJE:

paid = Deferrals

Step 2: Who are we?

Insured party = Expense; Prepaid Expense

Step 3: Method Used?

Asset Method

Step 4: EOP
= to record expense incurred (magkano nagamit)
JMH
Prepaid Expense
Example:
JMH Company acquired a six-month insurance coverage for its
properties on September 1, 2021 for a total of Php 6,000.00. The
company used asset account in recording the transaction.

Step 5: AJE

Expense incurred: 6,000 x 4/6 = 4,000

Insurance Expense 4,000

Prepaid Insurance 4,000

JMH
Prepaid Expense
Example:
JMH Company acquired a six-month insurance coverage for its
properties on September 1, 2021 for a total of Php 6,000.00. The
company used expense account in recording the transaction.

Step 1: Type of AJE:

paid = Deferrals

Step 2: Who are we?

Insured party = Expense; Prepaid Expense

Step 3: Method Used?

Expense Method

Step 4: EOP
= to record expense incurred (magkano natira)
JMH
Prepaid Expense
Example:
JMH Company acquired a six-month insurance coverage for its
properties on September 1, 2021 for a total of Php 6,000.00. The
company used expense account in recording the transaction.

Step 5: AJE

Prepaid Insurance: 6,000 x 2/6 = 2,000

Prepaid Insurance 2,000

Insurance Expense 2,000

JMH