LEARNING AS ONE NATION

FABM2_15
Expanded Project
SHS LEARNING ACTIVITY
Name: Score/Mark:
Grade and Section: Date:
Strand:  STEM  ABM  HUMSS  ICT (TVL Track)
Subject: Fundamentals of ABM 2
Type of Activity:  Concept Notes  Skills: Exercise/Drill  Illustration
 Performance Task  Essay/Report  Others:
Activity Title: LA-15. Adjusting Journal Entries: Prepaid Expenses
Learning Target: To prepare adjusting entries for prepaid expenses
References: Hinayon, et al., Fundamentals of Accounting Vol. 1, p. 140
(Author, Title, Pages) C. S. Agas and Q. J. Abcede, CVIF Learning Activities

Prepayments (or pre-collections) are the opposite of accrued

expenses: cash was already paid but expenses were not yet incurred, or only a
portion of it was used up as expense. Examples of prepayments are on rent,
insurance, advertising, and supplies. If no adjustment will be made, the asset
will be overstated, and the related expense will be understated.

Assuming that at the end of period, the company has the following data:
Supplies account had Php10,000 balance at the beginning of the period;
Php5,000 worth of supplies were purchased during the period; and at the
end of the period, unused supplies totaled Php7,000.

Therefore, during the period, Php8,000 worth of supplies were used [(10,000
+ 5,000) – 7,000]. This USED portion from the asset (Supplies) should be
removed and be reclassified as an expense.

TO ADJUST THE ENTRY: we debit the expense account and credit the asset
account.

Dec 31 Supplies expense 8,000

Supplies 8,000
(To record used supplies)

Exercises: Try to apply the method used above on adjusting another asset
account, Prepaid Insurance. Prepare the adjusting journal entry at year-end
December 31, 2020 (assuming that the accounting period is for one calendar
year).

The Prepaid Insurance account has a debit balance of Php12,000 on

December 31, 2020, representing premium for a 12-month fire insurance policy
effective August 15, 2020.