ACC 104: Fundamentals of Accounting

and Financial Statement Analysis

Student Activity Sheet #22

Name: ____________________________________________________ Class #:_____________

Section: ____________ Schedule: ____________________________ Date: _______________

Lesson Title: Adjusting Entries - Deferrals Materials:

Activity Sheet #22
Lesson Objective:
At the end of this module, I should be able to: References:
a) Prepare adjusting entries for deferrals using different Basic Financial Accounting and
methods Reporting, WIN Ballada
Financial Accounting and
Reporting, Zeus Vernon Millan

Productivity Tips:
Before sleeping tonight, review the important concepts and terms that you’ve learned and schedule
doing problem solving activities to help you check if you can apply the accounting procedures and concepts!

A. LESSON PREVIEW/REVIEW

Introduction
Good day our dear students!
Last time you have learned the purpose and nature of adjusting entries. Also, you have learned the
different types of adjusting entries and journalized the accrual of income and expense for the account
such as interest, rent, and utilities. Today as a continuation, we will focus on deferrals including pre-
payments and pre-collections.
Continue to read this module because another exciting lesson awaits you here! Enjoy!

Activity 1: What I Know Chart, Part 1

Do you know anything about the topic? Try answering the questions below by writing your ideas
under the first column What I Know. It’s okay if you write key words or phrases that you think related to the
questions.
What I Know Questions: What I Learned (Activity 4)

1. What are differences between

expense and asset method of
recording prepayments?

2. What are differences between

income and liability method of
recording pre-collections?

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 ACC 104: Fundamentals of Accounting
and Financial Statement Analysis
Student Activity Sheet #22
B. MAIN LESSON

Activity 2: Content Notes

Adjustments for Deferrals

1. Prepayments – advance payment

 Prepaid Expense – expenses already paid but not yet incurred such as prepaid rent, unused
supplies, unexpired insurance
Two methods of recording prepayments
1. Expense method – upon payment, expense account is debited
2. Asset method – upon payment, asset account is debited

To illustrate: Prepayments
On September 1, 2021, ABC Co. paid an insurance premium covering the period from September 1,
2021 to September 1, 2022 in the amount of P3,600. The accounting period ends December 31, 2021

Comparative Journal Entries

Date
Expense Method Asset Method
Upon Insurance Expense P 3,600 Prepaid Insurance P 3,600
payment on Cash P 3,600 Cash P 3,600
Sept. 1, 2021 To record insurance premium paid To record insurance premium paid

Adjusting Prepaid Expense P 2,400 Insurance Expense P 1,200

entry on Insurance Expense P 2,400 Cash P 1,200
Dec. 31, 2021 To record the unexpired portion of To record the expired portion of
insurance insurance

2. Pre-collection – advance collection

 Unearned/Deferred income – income already received not yet earned such as unearned service
income, unearned fees revenue
Two methods of recording pre-collections
1. Income method – upon collection, an income account is credited
2. Liability method – upon collection, a liability account is credited

To illustrate: Pre-collection
On October 1, 2021 ABC Co. collected P12,000 from a tenant representing an advance collection from
building rentals for one year. The accounting period ends on December 31, 2021

Comparative Journal Entries

Date
Income Method Liability Method
Upon Cash Cash P 12,000 Cash P 12,000
Receipt on Rent Income P 12,000 Unearned Rent Income P 12,000
Oct. 1, 2021 To record collection of advance rental To record collection of advance rental
Rent Income P 9,000 Unearned Rent Income P 3,000
Adjusting
Unearned Rent Income P 9,000 Rent Income P 3,000
entry on
To record unearned portion (liability) of To record Earned portion (income) of rental
Dec. 31, 2021
rental collected in advance collected in advance

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 ACC 104: Fundamentals of Accounting
and Financial Statement Analysis
Student Activity Sheet #22

Activity 3: Skill-building Activities

Let’s practice! After completing each exercise, you may refer to the Key to Corrections for feedback.
Try to complete each exercise before looking at the feedback.

Exercise 1: True or False. Write T if the statement is correct, otherwise F if it is incorrect.

1. Deferral is the recording of items of income that were collected in advance
2. Deferral is the recording of items of expense that were paid in advance
3. Under the asset method, adjusting entry is needed to recognize the expired portion
asset
4. Under the asset method, adjusting entry is needed to recognize the unexpired portion
insurance
5. Under expense method, adjusting entry is needed to recognize the expired portion of
insurance
6. Under expense method, adjusting entry is needed to recognize the unexpired portion of
insurance
7. Under liability method, cash receipts from items of income are initially credited to a
liability account
8. Under liability method, the earned portion is recognized as income while the unearned
portion remains as liability.
9. Under income method, cash receipts from items of income are initially credited to a
income account
10. Under income method, the unearned portion is recognized as liability while the earned
portion remains as income.

Exercise 2: Adjusting Entries

Prepare the adjusting entries on December 31for each item below:

1. On December 3, 2020, ABC Co. bought supplies worth P10,000. At the end of the year, the
inventory count revealed that P3,000 of supplies were still on hand.

Comparative Journal Entries

Date
Expense Method Asset Method

2. On December 1, 2021 ABC Co. collected P24,000 from a client representing an advance
service to be performed each month for one year. The accounting period ends on December 31,
2021.

Comparative Journal Entries

Date
Income Method Liability Method

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 ACC 104: Fundamentals of Accounting
and Financial Statement Analysis
Student Activity Sheet #22

Activity 4: What I Know Chart, part 2

It’s time to answer the questions in the What I Know chart in Activity 1. Log in your answers
based on what you now know in the third column of the chart.

C. LESSON WRAP-UP

Activity 6: Thinking about Learning

Congratulations for finishing this module! Shade the number of the module that you finished
answer the questions below.
You are done with the session! Let's track your progress.
Period 1 Period 2 Period 3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

1. What could you have done better to improve your learning today?
______________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
2. What surprised you about the lesson today?
______________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

3. Some question/s I want to ask my teacher about this module is/are:

______________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

KEY TO CORRECTIONS

Answers to Skill-Building Exercises

Exercise 1:
1. T
2. T
3. T
4. F
5. F
6. T
7. T
8. T
9. T
10. T

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 ACC 104: Fundamentals of Accounting
and Financial Statement Analysis
Student Activity Sheet #22
Exercise 2:

Comparative Journal Entries

Date
Expense Method Asset Method
Adjusting Supplies P 3,000 Supplies Expense P 7,000
entry on Supplies Expense P 3,000 Supplies P 7,000
Dec. 31, 2021 To record the unexpired portion of To record the expired portion of
supplies supplies

Comparative Journal Entries

Date
Income Method Liability Method
Service Income P22,000 Unearned Service Income P 2,000
Adjusting
Unearned Service Income P 22,000 Service Income P 2,000
entry on
To record unearned portion (liability) of To record Earned portion (income) of
Dec. 31, 2021
service fee collected in advance service fee collected in advance

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