ICT 141: Principles of Accounting First Semester 2021 -2022

Course Title: Principles of Accounting

I. Module 11: Adjusting the Accounts

Estimated Time: 4 hours (Week 17-18)
1) Awareness of adjusting the accounts.

II. Module Introduction/Rationale:

This module introduces you to the process of adjusting the accounts.

III. Module Outcomes:

At the end of the topic the students must have:
1) Awareness of adjusting the accounts.

IV. Lesson One: Adjusting the Accounts

V. Lesson Outcomes:
1) Awareness of adjusting the accounts.

Engage
Do you have an idea about adjusting the accounts? If yes, can you share your idea? Go to
www.menti.com and use the designated code.

Explore
Click the link https://www.youtube.com/watch?v=NZ13jZD6QcM and
https://www.youtube.com/watch?v=6AbUJTK4Nzg

Explain

Adjusting the Accounts

At the end of the accounting period, when the journalizing and the posting processes have been
completed and the trial balance has been prepared, accounts are examined to determine whether their
balances reflect their true values or not.

The Adjustment Process

Entries made at the end of the accounting period to update or correct the accounts in order to
portray realistic financial statements are called adjusting entries. They have at least one statement of
financial position account entry and at least one income statement account entry. They are needed when
deferrals and accruals exist.

A deferral is the postponement of the recognition of an expense already paid or of a revenue

already received.

a. Prepaid Expenses
Prepaid expenses are expenses paid in advance. They are not yet incurred but already
paid. Among these items are rent, insurance, and supplies.

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 ICT 141: Principles of Accounting First Semester 2021 -2022

Example: Prepaid Rent

Transaction : Expiration of one month rent.

Analysis: : Prepaid Rent, an asset account, is decreased. Rent Expense,
an expense account, is increased.
Entry : Debit Rent Expense, Credit Prepaid Rent

b. Depreciation of Plant and Equipment

When a company buys a long-lived asset, such as building, equipment, truck,
automobile, computer, store fixtures, or office furniture, it is basically buying or prepaying
for the usefulness of that asset for as long as the asset provides a benefit to the
company. Proper accounting, therefore, requires the allocation of the cost of the asset
over its estimated useful life. The amount allocated to any one accounting period is called
depreciation or depreciation expense.

Example: Depreciation of Machinery

Transaction : Recording depreciation expense.

Analysis : Asset is decreased. Owner’s equity is decreased by increasing
the expense account.
Entry : Debit Depreciation Expense – Machinery, Credit Accumulated
Depreciation – Machinery

An accrual is the recognition of an expense that has been incurred but not yet paid or revenue
that has been earned but not yet collected.

a. Unrecorded or Accrued Revenues

Unrecorded or accrued revenues are revenues for which the services have been
performed or the goods delivered but for which no entry has been recorded in the account
since no payment has been received yet.

Example: Unrecorded or Accrued Interest

Transaction : Interest on a note receivable is earned day by day but may not
be in fact received until another accounting period.
Analysis : Interest Receivable is increased. Interest Revenue is also
increased.
Entry : Debit Interest Receivable, Credit Interest Revenue

b. Unrecorded or Accrued Expenses

At the end of the accounting period, usually there are expenses that have been incurred
but not recorded in the account since payment has not been made.

Example: Unrecorded or Accrued Wages

Transaction : Unrecorded or accrued wages

Analysis : Wages Expense, an expenses account, is increased. Wages

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 ICT 141: Principles of Accounting First Semester 2021 -2022

Payable, a liability account, is increased.

Entry : Debit Wages Expense, Credit Wages Payable

Elaborate

As a student, what adjustment process do you experience?

Evaluate
Worksheet No.

Name: ____________________________________________________________
Course, Year and Section:_______________________________ Date: __________

Answer as directed. Write your answer on the space provided.

1) Determine the process of adjusting the accounts.

References:
• Rabot, Bernabe Donato Jr. and Malco, Ma. Theresa De Francesca. Accounting Skills and
Bookkeeping Principles Workbook for K-12 Senior High School. (2019) Great Books Trading.
• Reyes, Virgilio D. The Fundamentals In Accounting 2018th Edition (2018). GIC Enterprises Co,
Inc
Online References:
https://www.youtube.com/watch?v=NZ13jZD6QcM
https://www.youtube.com/watch?v=6AbUJTK4Nzg

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