ALAMINOS CITY NATIONAL HIGH SCHOOL – SENIOR HIGH SCHOOL DEPARTMENT

LEARNING ACTIVITY SHEET 09 IN FABM 2

Week 5, Quarter 2, January 3-7, 2022

I. Title: Adjusting Journal Entries

II. Learning Competency with code.
LC 20 Prepares adjusting entries
LC 21 Complete the accounting cycle
III. Background Information for Learners

Adjusting Journal Entries are entries used to update the accounts prior to the preparation of Financial Statement
because they affect more than one accounting period. Transactions are apportioned properly between the accounting
period affected. The accounts affected are adjusted so that there i would be no overstatement or understatement of
balance sheet items and income statement items.

The process of determining an entity's net income or net loss requires certain income and expense accounts to be
apportioned over several accounting periods. According to the accrual principle, income is recognized at the time it is
actually earned and expense is recognized at the time it is actually incurred or used. Thus, a receipt of cash does not
necessarily mean a recognition of income, and payment of cash does not necessarily mean the recognition of an expense,

An example of this is the cash received from a customer for the reservation of a hotel room for two weeks. The
receipt of cash from the customer does not necessarily mean that income should be recognized. The receipt of cash should
be recognized more as a liability than income. It is more appropriate to treat it as a liability in the form of service to be
rendered. It is only after the customer has checked in the hotel for his two-week stay can his advance payment be
considered as income because the service has already been rendered.

Another example is a one-year insurance premium paid for the insurance of a house. The amount paid representing a one-
year premium cannot be charged outright as an expense. This is because the premium paid covers a one-year insurance.
Hence, the full amount can only be charged as expense after one year. The following are the accounts subject to adjustment:

A. Pre-payment
Are expense already paid but not yet incurred or sustained.

The Journal Entry upon payment:

DATE DESCRIPTION PR DEBIT CREDIT
2021
JULY 1O PREPAID EXPENSE XX
CASH XX
The adjusting Journal entry:
DATE DESCRIPTION PR DEBIT CREDIT
2021
JULY 1O EXPENSE XX
PREPAID EXPENSE XX

Example 1:
On October 1, 2021 X company paid one year advance rent for 24,000. Give the adjusting journal entry on December 31,
2021

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The Journal Entry upon payment on October 1, 2021 :
DATE DESCRIPTION PR DEBIT CREDIT
2021
OCT. 1 PREPAID RENT 24,000
CASH 24,000
The adjusting Journal entry at the end of the accounting period December 31, 2021:
DATE DESCRIPTION PR DEBIT CREDIT
2021
DEC 31 RENT EXPENSE 6,000
PREPAID RENT 6,000
Computation:
The P24,000 rent represents one year or 12 months rent. Divide P24,000 by 12 to get the monthly rent. Multiply it
by 3 months representing the rent from Oct. I to Dec. 31, 2021. P24,000/12 x 3= P6,000. P6,000 is therefore the expired /
used rent from Oct. I to Dec. 31, 2021.

Analysis: When you paid P24,000 for the one-year rent in advance on Oct. 1, you debited the asset account Prepaid Rent
representing 12 months rent. On December 31, at the end of the accounting period, the P24,000 Prepaid Rent is not totally
asset since it includes the 3 months expired or used portion (Oct. 1 to Dec, 31) Hence, an adjusting entry is necessary to
recognize the rent expense for 3 months by debiting it and decreasing the balance of prepaid rent by crediting it.

Example 2:
On March 31, 2021, B Co. paid P72,000 insurance premium for 2 years. Give the Adjusting Journal entry on May 31, 2021.
Journal Entry upon payment on Mar 31, 2021:
DATE DESCRIPTION PR DEBIT CREDIT
2021
OCT. 1 PREPAID INSURANCE 72,000
CASH 72,000
The adjusting Journal entry at the end of the accounting period MAY 31, 2021:
DATE DESCRIPTION PR DEBIT CREDIT
2021
DEC 31 INSURANCE EXPENSE 6,000
PREPAID INSURANCE 6,000
Computation:
The P72,000 premium represents 2 years or 24 months premium. Divide P72,000 by 24 to get the monthly premium then
multiply it by 2 to get the used months from Mar. 31 to May 31, 2021.
P72,000/24 x 2 = P6,000
Expired insurance premium, therefore to be charged to expense is P6,000 representing the 2 months from Mar. 31 to May
31, 2021.
Analysis: When you paid P72,000 for the two-year insurance on Mar. 31, 2021, you debited the asset account
Prepaid Insurance representing 24 months insurance. On May 31, 2021 which is the end of the accounting period, the
P72,000 Prepaid Insurance is not totally an asset since it includes the 2 months expired or used portion (Mar. 31 to May
31). Hence, an adjusting entry is necessary to recognize the insurance expense for 2 months by debiting in and decreasing
the balance of prepaid insurance by crediting it.

Example 3
Supplies account on January 1, 2021, showed a balance of P7,000. On December 31, 2021 supplies on hand amounted to
P2,000.

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Adjusting Journal entry on December 31, 2021:
DATE DESCRIPTION PR DEBIT CREDIT
2021
DEC 31 SUPPLIES EXPENSE 6,000
SUPPLIES 6,000

Computation:
Supplies at the beginning of the year is P7,000. At the end of the year, the remaining balance is P2,000. The
difference represents the supplies used during the year. Subtract P2,000 from P7,000 to get the supplies used during the
year. P7,000-P 2,000-P 5,000
Analysis: On January 1, 2021, the asset account Supplies has a balance of P7,000. Since at the end of the year, the
balance of the asset account Supplies decreased to P2,000, 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.

Example 4
Supplies account showed a balance of P12,000. Supplies used during the year amounted to P4,000. Give the Adjusting
Journal Entry on Dec. 31, 2021.
DATE DESCRIPTION PR DEBIT CREDIT
2021
DEC 31 SUPPLIES EXPENSE 4,000
SUPPLIES 4,000
Computation:
There is no computation necessary because the P 4,000 supplies used during the year was already given in the
problem.
Analysis: The asset account Supplies showed a balance of P12,000 at the beginning of the year. Supplies used
during the year amounted to P4,000. This should be recorded as expense by debiting supplies expense and crediting the
asset account Supplies to decrease its balance.

II. Unearned or Deferred income

is income already received but not yet earned.
Journal Entry upon receipt of cash
DATE DESCRIPTION PR DEBIT CREDIT
2021
OCT. 1 Cash XX
Unearned Income XX
The adjusting Journal entry at the end of the accounting period
DATE DESCRIPTION PR DEBIT CREDIT
2021
DEC 31 Unearned Income XX
Income XX
Note: The amount of the adjusting journal entry is the earned portion of the amount initially received.
Example 1
On November 30, 2021, A Co., received P36,000 advance rental for 6 months. Give the Adjusting Journal entry on
December 31, 2021.
Journal Entry upon receipt of cash on November 30
DATE DESCRIPTION PR DEBIT CREDIT
2021
Nov. 30 Cash 36,000
Unearned Rent Income 36,000

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The adjusting Journal entry at the end of the accounting period, December 31
DATE DESCRIPTION PR DEBIT CREDIT
2021
DEC 31 Unearned Rent Income 6,000
Rent Income 6,000
Computation:
The P36,000 cash you received represents six months rent. Divide P36,000 by 6 to get the monthly rent then
multiply it by 1 month representing the rent from Nov. 30 to Dec. 31, 2021.
P 36,000/12 x 1-P 6,000
Analysis: When you received P36,000 for the six months rent paid to you in advance on P6,000 is therefore the
rent income from Nov. 30 to Dec. 31, 2021 November 30, you debited cash and credited the liability account Unearned
Rent Income for 6 months rent. On December 31, which is the end of the accounting period, the P36,000 Unearned Rent
Income s not totally a liability account since it now includes the 1-month earned rent (November 30 to December 31).
Hence, an adjusting entry is necessary to recognize the earned portion of the initially recorded Unearned Rent Income by
crediting Rent Income and debiting Unearned Rent Income to decrease the liability.

Example 2
On May 1, Dr. Young received P60,000 for medical fees to be rendered in the next 3 months.
Give the Adjusting Journal Entry at the end of May.
Journal Entry upon receipt of cash on May 1
DATE DESCRIPTION PR DEBIT CREDIT
2021
MAY 1 Cash 60,000
Unearned Medical Fees 60,000
The adjusting Journal entry at the end of the accounting period, December 31
DATE DESCRIPTION PR DEBIT CREDIT
2021
MAY 31 Unearned Rent Income 20,000
Medical Fees 20,000
Computation
The P60,000 cash received represents 3-month medical services to be rendered. P60,000 by 3 to get the monthly
medical fee.
P60,000/3= P20,000
P20,000 is therefore the medical fees earned from May 1 to May 31, 2021,

Analysis: When the P60,000 was received on May I for the 3-month medical services paid in advance, cash was
debited and the liability account Unearned Medical Fees was credited representing 3 months uneared fees. On May 31,
the end of the month, the P60,000 Unearned Medical Fees is not totally a liability account since it includes the 1-month
medical fees earned (May 1 to May 31). Hence, an adjusting entry is necessary to recognize the earned portion of the
initially recorded Unearned Medical Fees by crediting Medical Fees and debiting Unearned Medical Fees to decrease the
liability.

C. Accrued Expenses
are expenses already incurred or used, but not yet paid. Adjusting Journal Entry at the end of the accounting
period.
The adjusting Journal entry at the end of the accounting period, December 31
DATE DESCRIPTION PR DEBIT CREDIT
2021
DEC 31 Salary Expense XX
Salary Payable XX

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Example 1
Unpaid salaries at the end of December 31, 2021 amounted to P20,000.
The adjusting Journal entry at the end of the accounting period, December 31
DATE DESCRIPTION PR DEBIT CREDIT
2021
DEC 31 SALARY EXPENSE 20,000
SALARY PAYABLE 20,000
Analysis: This is a liability on the part of the company because the employees have already worked for this but the
company has not paid their salaries. Hence, a liability on the par the company should be recognized at the end of the
accounting period.
Example 2
The company received a telephone bill in the amount of P 1,200 on Dec. 29, 2021 w the company intends to pay on
January 5, 2022.
The adjusting Journal entry at the end of the accounting period, December 31,2012
DATE DESCRIPTION PR DEBIT CREDIT
2021
DEC 31 UTILITY EXPENSE 1,200
UTILITY PAYABLE 1,200
Analysis: This is liability on the part of the company because the telephone bills is for the month of December but
the company has not yet paid for it. Hence, a Liability on the part of the company should be recognized at the end of the
accounting period

D. Accrued Income
is income already earned but not yet received.
The adjusting Journal entry at the end of the accounting period, December 31,2021
DATE DESCRIPTION PR DEBIT CREDIT
2021
DEC 31 Income Receivable XX
Income XX
Example
A one-year 10% note receivable in the amount of P100,000 was received on January. 2021. The interest and the principal
are payable on many dice Give the Adjusting Journal Entry on June 30, 2021.
Adjusting Journal Entry on June 30, 2021
The adjusting Journal entry at the end of the accounting period, June 30,2021
DATE DESCRIPTION PR DEBIT CREDIT
2021
Jun 30 Interest Receivable 5,000
Interest Income 5,000
Interest- Principal x Rate x Time
= P100,000 x 10%x ½ year
= P100,000 x .10x ½ year
=5,000
Analysis: The note receivable bears interest at 10% per annum. This interest will be received after one year on
January 1, 2013. However, the note has already earned half-year interest on June 30, 2012 in the amount of P5.000
although this interest has not yet been received Hence, an adjusting journal entry is necessary to recognize the interest
earned on the notes

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E. Bad Debts/ Doubtful Accounts
are losses due to uncollectible accounts.
DATE DESCRIPTION PR DEBIT CREDIT
2021
DEC 31 Bad Debts Expense XX
Allowance for Bad Debts XX

Example 1
Accounts Receivable shows a balance of P50,000. It is estimated that 10% of this is uncollectible. Give the adjusting
journal entry on December 31, 2021 for the provision of the estimated uncollectible account.
DATE DESCRIPTION PR DEBIT CREDIT
2021
DEC 31 Bad Debts Expense 5,000
Allowance for Bad Debts 5,000
Computation 50,000 X 10% = 5,000
Example 2
Accounts Receivable shows a balance of P50,000. It is estimated that 10% of this is uncollectible. Allowance for Bad Debts
per general ledger has a balance of P3,000. Give the adjusting journal entry on December 31, 2021 for the provision of the
estimated uncollectible account.
DATE DESCRIPTION PR DEBIT CREDIT
2021
DEC 31 Bad Debts Expense 2,000
Allowance for Bad Debts 2,000
Note: The required allowance for doubtful accounts is P5,000 (P50,000 x 10%). However, per general ledger, the
allowance for doubtful accounts already shows a balance of P3,000. An adjusting journal entry to bring the balance of the
allowance for doubtful accounts to the required balance of P5,000 is necessary.
F. Depreciation Expense
is the allocation of plant asset cost over its estimated useful life. This is t the expense allotted for the wear and
tear of property, plant, and equipment due to passage of time. The three factors considered in computing the
depreciation expense:
1. Cost is the purchase price of the depreciable asset.
2. Salvage value is the estimated value of the asset at the end of its useful life.
3. Estimated useful life, as the name connotes, is not an exact measurement but merely an estimation of the number of
years an asset can be useful to the entity.
The formula for computing for annual depreciation is as follows:
Cost XX
Less: Salvage Value XX
Depreciable cost XX
Divided by: Estimated Useful Life X
Annual Depreciation XX
The process of recording depreciation does not directly charge depreciation to the asset account. The charge is recorded
in a contra-asset account called accumulated depreciation. The use of this account allows the original cost of the asset
and the related accumulated depreciation count to be shown in the balance sheet. The balance of the accumulated
depreciation is deducted from the cost of the asset to get the carrying value of the asset.
Example
A building with an estimated useful life of 20 years finished construction on April 1, 2012. The cost of the building is 2.6
million with an estimated salvage value of P200,000. Give the Adjusting Journal Entry on December 31, 2012 to record the
depreciation of the building.
Adjusting Journal Entry on Dec. 31, 2021
DATE DESCRIPTION PR DEBIT CREDIT

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 2021
DEC 31 Depreciation Expense 90,000
Accumulated Depreciation 90,000

Computation:
Cost 2,600,000
Less: Salvage Value 200,000
Depreciable cost Divided 2,400,000
by: Estimated Useful Life 20 years
Annual Depreciation 120,000
Take note that what we have gotten is the annual depreciation. Since the building was completed on April 1, we will have
to apportion the annual depreciation of P120,000 by dividing it by 12 to get the monthly depreciation then multiplying it
by 9 months representing the depreciation of the building from April 1 to Dec. 31, 2021.
P 120,000/12 x 9 months = P 90,000

Activity 1:Theory exercise

Write the letter of the correct answer on the blank.
Deferred Income Adjusting Journal Entries
Prepayment Accrued Income
Depreciation Expense Accrued Expense
_________1. Expenses already incurred but not yet paid
_________2. Expenses already paid but not yet incurred
_________3. Entries used to record internal transactions affecting more than one period
_________4. Income already received but not yet earned
_________5. Income already earned but not yet received
_________6. The expense allotted for the wear and tear of equipment due to passage of time

Activity 2:
Prepare the adjusting entry for each of the following for year ended December 31, 2012,
1.Paid Trio Insurance Co. P33,000 one year car insurance to commence August 1, 2012. The amount of premium was
debited to Prepaid Insurance.
2. Borrowed P200,000 April 30, 2012. from Metro Bank issuing a one-year note with 12% annual interest on April 30,2012
3. Bought P20,000 equipment with five-year estimated life and a salvage value of P2,000. Depreciation is computed on a
straight-line basis.
4. Received P51,000 cash advance from a customer for one-year services to be rendered starting June 30, 2012. The
amount was credited to Unearned Service Income.
5. Purchased P7,100 supplies at the beginning of the year. Supplies remaining at the end of the year amounted to P2,900.
6. Accounts receivable has a balance of P130,000. It is estimated that P5,000 of this is uncollectible.

Activity 3:
1. Define adjusting entries and explain the purpose?
2. Describe the types of adjusting journal entries?

VI. Rubric for scoring

A. Problem= 1 Point per correct item

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B. Discussion

VII. References for Learners:

Fundamentals of Accountancy, Business, and Management 1, First Edition by Joselito G. Florendo
Fundamentals of Accountancy, Business, and Management 1, 2017 by Benedick Manalaysay
Fundamentals of Accountancy, Business, and Management, 2018-2019 ed. By Rodiel C. Ferrer and Zeus Vernon B. Millan
Fundamentals of Accountancy, Business, and Management, 2017 by Feme M. Palencia et. Al
Basic Accounting Made Easy, 18th ed. by Win Ballada and Sudan Ballada

Prepared by: Checked by: Approved by:

Romualdo F. Credo Lovelie V. Verceles JOSE RAMIL A. SIBUN

Teacher III Master Teacher I OIC-Asst. Principal II, Academics

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