Adjusting Journal Entry on December 31, 2016

Supplies Expense
4,500
Supplies
To record supplies used for the year
4,500

Computation
Supplies at the beginning of the year is P8,000. At the end of the year, the remaining
balance is P3,500. The difference represents the supplies used during the year. Subtract
93,500 from P8,000 to get the supplies used during the year.

P8,000 - P3,500 = P4,500

Analysis: On January 1, 2016, the asset account Supplies has a balance of P8,000.
At the end of the year, the balance of the asset account Supplies decreased to P3.500. The
difference represents the supplies used during the year. You will have to recognize the used
supplies as an expense by debiting Supplies Expense and decrease the asset account
Supplies by crediting it.

LESSON 5-3
DEFERRALS
Lesson Objectives

• define deferrals
• make the required adjusting journal entries for deferrals

Unearned or deferred income is income already received but not yet earned.

Liability method
Journal entry upon receipt of cash
Cash XXX
Unearned Income XXX
Received cash for services to be rendered

Adjusting journal entry at the end of the accounting period

Unearned Income XXX

Income XXX
To record earned portion of the liability

Note: The amount of the Adjusting Journal Entry is the earned portion of the amount
initially received.