Adjustments

Prepaid Expenses
Jimin Company purchased office supplies on August 01, 2020 amounting to Php 100 00 in which the company
immediately paid in cash. At December 2021, which coincides to be the end of the accounting period, inventory records
show that the amount of remaining office supplies amount to Php 40 000.

Asset Method

Date Account Title and Description PR Debit Credit

08012022 Office Supplies 100 000
Cash 100 000
Solution:
Office Supplies – 100 000
(40 000)
Used Supplies 60 000
12312022 Office Supplies Expense 60 000
Office Supplies 60 000

Expense Method

Date Account Title and Description PR Debit Credit

08012022 Office Supplies Expense 100 000
Cash 100 000
12312022 Office Supplies 40 000
Office Supplies Expense 40 000

Prepaid Expense (Insurance)

https://drive.google.com/file/d/1koe73FnMbYFaDkGN3_lRArlCY92MmJl8/view?usp=sharing
Deferred Revenue
Lipana Tax Consultancy received Php 150 000 representing advanced payment for 6 months tax compliance and
consulting services from one of the clients on November 01, 2020. The accountancy period of the entity ends on
December 31, 2020.

Liability Method

Date Account Title and Description PR Debit Credit

11012020 Cash 150 000
Unearned Revenue 150 000
Solution:
𝑛𝑜. 𝑚𝑜𝑛𝑡ℎ𝑠 𝑝𝑎𝑠𝑠𝑒𝑑
𝐹𝑜𝑟𝑚𝑢𝑙𝑎: 𝐶𝑎𝑠ℎ ×
𝑛𝑜. 𝑜𝑓 𝑚𝑜𝑛𝑡ℎ𝑠 𝑝𝑎𝑖𝑑 𝑖𝑛 𝑎𝑑𝑣𝑎𝑛𝑐𝑒𝑑
2
150 000 × = 50 000
6

12312020 Unearned Revenue 50 000

Earned Revenue 50 000

Revenue Method

Date Account Title and Description PR Debit Credit

08012022 Cash 150 000
Earned Revenue 150 000
Solution:
𝑛𝑜. 𝑜𝑓 𝑚𝑜𝑛𝑡ℎ𝑠 𝑙𝑒𝑓𝑡
𝐹𝑜𝑟𝑚𝑢𝑙𝑎: 𝐶𝑎𝑠ℎ ×
𝑛𝑜. 𝑜𝑓 𝑚𝑜𝑛𝑡ℎ𝑠 𝑝𝑎𝑖𝑑 𝑖𝑛 𝑎𝑑𝑣𝑎𝑛𝑐𝑒𝑑
4
150 000 × = 100 000
6
12312022 Earned Revenue 100 000
Unearned Revenue 100 000
Accrued Revenue
Lipana Tax Consultancy rendered year-end tax compliance and consultancy services to ABC Company on
December 15-19, 2020 amounting to Php 50 000. It was ascertained that ABC Company will be paying Lipana Tax
Consultancy during the first quarter of 2021. Prepare the adjusting entry at December 31, 2020.
Date Account Title and Description PR Debit Credit
12312020 Accounts Receivable 50 000
Service Revenue 50 000
Payment: 50 000
Cash
Accounts Receivable 50 000

Accrued Expense – Salary on Work Week

Lipana Tax Consultancy pays their liaison officers on weekly basis, The company has ten liaison officers receiving
Php 3 000 weekly, every Friday. The last day of the year, December 31, 2020, fell on a Thursday. Prepare the necessary
adjusting entry on December 31, 2020, and the entry to record the payment of the weekly salary on January 01, 2021,
Friday.
Date Account Title and Description PR Debit Credit
Solution:
4
30 000 × = 24 000
5

12312020 Salaries Expense 24 000

Salaries Payable 24 000
01012021 Salaries Payable 24 000
Salaries Expense 6 000
Cash 30 000

Accrued Expense – Interest Payable

Lipana Tax Consultancy borrowed Php 200 000 from a bank, evidenced by a note of promise to pay on May 01,
2020 with an interest rate of 12%. Both the principal and the interest are payable after one year, that is, April 30, 2021.
Prepare all necessary entries without the use and with the use of reversing entries.
 Without Reversing With Reversing
May 01, 2020 Cash – 200 000 Cash – 200 000
INITIAL ENTRY Notes Payable – 200 000 Notes Payable – 200 000

December 31, 2020 8 8

200000 × 0.12 × = 16 000 200000 × 0.12 × = 16 000
ADJUSTING ENTRY 12 12

Interest Expense – 16 000 Interest Expense – 16 000

Interest Payable – 16 000 Interest Payable – 16 000
December 31, 2020 Profit and Loss Summary – 16 000 Profit and Loss Summary – 16 000
CLOSING ENTRY Interest Expense – 16 000 Interest Expense – 16 000
January 01, 2021 Interest Payable – 16 000
REVERSING ENTRY Interest Expense – 16 000
April 30, 2021 Notes Payable – 200 000 Notes Payable – 200 000
REPAYMENT ENTRY Interest Payable – 16 000 Interest Expense – 24 000
Interest Expense – 8 000 Cash – 224 000
Cash – 224 000