STEP 5: ADJUSTING JOURNAL ENTRIES

1. Prepaid Expense
2. Unearned/Deferred Income
3. Accrued Expense
4. Accrued Income
5. Depreciation Expense
6. Uncollectible/Doubtful/Bad Debt Expense
7. Inventory

1. PREPAID EXPENSE - Ito yung expense na nabayaran na pero hindi pa nagagamit o

nakokonsumo. Kaya nga “PREpaid” dahil binayaran in advance. Halimbawa nito ay ang
Office Supplies tulad ng ballpen, bondpapers at iba pa dahil binayaran muna ito ng entity
bago gamitin. Halimbawa rin ang mga Insurance Premium at Rent paid in advance o
Prepaid Rent.
Sa pag-aadjust ng prepaid expense ay mayroong dalawang method.
ASSET METHOD EXPENSE METHOD
Kaya siya tinawag na asset method ay Kaya siya tinawag na expense method ay
dahil magrerecord ka muna ng asset then dahil magrerecord ka muna ng expense
tsaka i-aadjust ang expense nito. then tsaka i-aadjust ang amount na hindi
pa nagagamit kung saan asset pa ng
Initial Entry: entity.
Prepaid Expense xxx
Cash xxx Initial Entry:
Expense xxx
Adjusting Journal Entry: Cash xxx
Expense xxx
Prepaid Expense xxx AJE:
Prepaid Expense xxx
Note: Sa adjusting entry, ang amount nito Expense xxx
is kung magkano na ang nagamit o
nakonsumo kaya nagdedebit ng expense Note: Sa adjusting entry, ang amount nito
to recognize expense. Credit naman ang is kung magkano ang hindi pa nagamit
asset to decrease the amount of asset. o nakonsumo kaya nagdedebit ng
prepaid expense which is an asset
account to recognize asset. Credit naman
ang expense to decrease the amount of
expense dahil nga may portion doon na
hindi pa nagagamit.
Note: Ang Asset Method ang mas preferred at common na gamitin.
2. UNEARNED/DEFERRED INCOME – Ito ay ang income na nakolekta na ng entity
ngunit hindi pa naibibigay ang produkto o serbisyo. Sa madaling sallita, nakatanggap ng
advance payment ang entity. Mayroon din itong dalawang method ng pagrerecord.
LIABILITY METHOD INCOME METHOD
Kaya tinawag na liability method dahil Kaya ito tinawag na income method dahil
nirerecord muna ang nakolektang bayad nirerecord na ang nakolektang bayad as
as liability since may obligation pa ang income already. Then sa adjusting ay
entity sa customer. Then sa adjusting nito irerecord kung magkano pa ang liability o
ay irerecord kung magkano na ang kinita hindi pa nae-earned.
ng entity o na-earned na.
Initial Entry:
Initial Entry: Cash xxx
Cash xxx Income xxx
Unearned Income xxx
AJE:
AJE: Income xxx
Unearned Income xxx Unearned Income xxx
Income xxx
Note: Ang amount nito ay kung magkano
Note: Ang amount nito ay kung magkano ang hindi pa nae-earned ng entity. Kaya
na ang na-earned ng entity. Kaya nagdedebit ng Income ay para bawasan
nagdedebit ng Unearned Income ay para ang income nito at credit naman ang
bawasan ang liability at credit naman ang unearned income to recognize liability na
Income to recognize revenue na naearned d pa nae-earned.
na.
Note: Liability Method ang mas preferred at common na gamitin.
3. ACCRUED EXPENSE – Ito ang expense na nagamit o nakonsumo na pero hindi pa
nababayaran tulad ng Utilities na ginagamit muna natin and tsaka babayaran sa end of
the month. Halimbawa rin ang Interest Expense on Notes Payable at accrued salaries of
employees. Kabaligtaran nito ang Prepaid Expense.
Adjusting Journal Entry to Accrued Payable:
Utilities Expense xxx
Utilities Payable xxx

Adjusting Journal Entry to Accrued Interest:

Interest Expense xxx
Interest Payable xxx

Note: Wala tayong initial entry since ang accrued interests ay usually inirerecord at the
at the end of accounting period kaya adjusting entry na agad ang ginagawa. Nakadebit
ang expense to recognize accrued expense and credit payable to recognize liability since
d pa siya nababayaran.
4. ACCRUED INCOME – Ito ang income na naearned na pero d pa nakokolekta ang
bayad. Halimbawa, nadeliver na iyong products o narender na iyong service ngunit hindi
pa nagbabayad ang customer. Alinsunod, sa accrual principle kailangan ay magrecord
ng income when earned regardless of collection. Halimbawa rin nito ang accrued interest
on notes receivable Ito naman ay kabaligtaran ng deferred income.

Adjusting Journal Entry to Accrued Interest:

Interest Receivable xxx
Interest Income xxx

Note: Ang kadalasang ina-adjust sa accrued income ay ang accrued interest. Ang
formula ng pagcompute ng interest ay Interest = Principal x Rate x Time. For example,
100,000 x 10% x 120/360. Lagi rin tatandaan na ang denominator sa time ay laging 360
if days, 12 naman if months dahil ang pagcocompute ng interest ay laging per year, ganun
din sa pagcompute ng accrued interest.
Sample Problem:
GHI Company received a 3-month, 12% dated Dec. 1, 2019 amounting to P100,000.
Interest is receivable upon maturity of the note.
Since ang end of accounting period is Dec. 31, 2019 so kailangan nating irecord ang
accrued interest for 1 month (always assume na calendar year ang gamit ng entity if
walang nakastate na accounting period method).
So, ang computation: 100 000 x 0.12 x 1/12 = P1,000
AJE:
Interest Receivable 1,000
Interest Income 1,000

Nakadebit ang intrest receivable to recognize asset na hindi pa nakokolekta at credit

naman ang interest income to recognize accrued income.

5. DEPRECIATION EXPENSE – Ito ay applicable mostly sa fixed assets. Since

bumababa ang halaga ng mga ito the more na ginagamit at sa paglipas ng panahon. Sa
madaling salita, ang mga ito ay naluluma kaya bumababa ang value. Ang tawag sa
pagbaba ng value ay depreciation at kailangan natin itong irecord at the end of accounting
period sa depreciation expense account. Meaning, every year ang pagcompute nito.
Merong tatlong methods ng pagcompute nito ngunit ang straight-line method muna ang
ituturo ko since the other methods ay ididiscuss in higher acco subjects at d pa rin sya
natuturo sa first year college.
So, ang formula ng straight-line method ay:
Cost of Equipment xxx
Less: Residual Value/Salvage Value xxx
Depreciable Cost xxx
Divided by: Estimated Useful Life /xx
Depreciation Expense per year xxx

Adjusting Journal Entry:

Depreciation Expense xxx
Accumulated Depreciation xxx

Note: If ang ang fixed asset ay hindi pa nagagamit ng 1 year, kailangan pa itong i-itong
hatiin sa kung ilang months lang nagamit.

For example:
A building with an estimated useful life of 30 years finished construction on June 1, 2019.
The cost of the building is 4.8 million pesos with an estimated salvage value of 300,000
pesos. Give the AJE on Dec. 31,2019.

Computation:
Cost of building P4,800,000
Less: Salvage Value 300,000
Depreciable cost P4,500,000
Divided by: EUL /30yrs
Annual Depreciation P 150,000

Since from June 1 to Dec. 31 ay 7 months lang ang nagamit, ay kukunin lang natin ung
expense for 7 months.
Iyong annual depreciation ay ididivide natin sa 12 months para makuha natin yung
Depreciation expense per month then tsaka natin i-mumultiply sa 7 months.
150,000 x 7 = P87,500
12

AJE
Depreciation Expense 87,500
Accumulated Depreciation 87,500
6. UNCOLLECTIBLE ACCOUNT/DOUBTFUL ACCOUNT/BAD DEBT EXPENSE
- Ito naman iyong mga hindi nakolekta mula sa accounts receivable ng entity.

AJE
Bad Debt Expense
Allowance for Bad Debt
Or
Uncollectible Accounts Expense
Allowance for Uncollectible Accounts
Or
Doubtful Accounts Expense
Allowance for Doubtful Accounts

Formula:
Accounts Receivable x Estimated Uncollectible Accounts = Required Allowance Balance

Example:
Accounts Receivable shows a balance of P100,000. It is estimated that 8% of this is
uncollectible. Give the adjusting entry at the end of accounting period.

Computation: 100,000 x 0.08 = P8,000

AJE:
Uncollectible Accounts Expense 8,000
Allowance for Uncollectible Accounts 8,000

However, if mayroong beginning balance na binigay sa Allowance for Uncollectible

Accounts, kailangan pa natin itong i-adjust.

Formula:
Required Allowance Balance xxx
Allowance Balance before Adjustment xxx
(add debit balance/ less credit balance)
Uncollectible Accounts Expense for the period xxx

Example:
Accounts Receivable shows a balance of P100,000. It is estimated that 8% of this is
uncollectible. Allowance for Uncollectible Accounts per general ledger shows a credit
balance of P1,000. Give the adjusting entry at the end of accounting period.
Computation:
Required Balance (100,000 x 0.08) P 8,000
Allowance Balance before Adjustment (1,000)
Uncollectible Accounts Expense for the period P 7,000

Note: Since ang allowance for uncollectible accounts ay naka-credit, kaya ibabawas natin
ito sa require balance.
Allowance for Uncollectible Accounts

1,000 Balance before adjustment (beg)

7,000
8,000 Required Balance (end)

7. INVENTORY – Gaya ng discussion natin last week, if periodic inventory system ang
gamit ng isang entity ay kailangan nitong i-adjust ang inventory at the end of accounting
period since hindi nito nirerecord ang physical movement ng inventory. Hindi nagrereflect
sa book na nababawasan ang inventory sa tuwing nakabebenta ito unlike sa perpetual.

Sa pag-aadjust ng inventory under the periodic system, may dalawang entries na

nirerecord

1. To transfer beginning inventory balance to income summary

Income Summary xxx
Merchandise Inventory (beg) xxx

2. To record ending inventory balance

Merchandise Inventory (end) xxx
Income Summary xxx

CLOSING ENTRIES
Sa tuwing magco-close ng accounts, kailangan lang ay irecord ito sa kabaligtaran
na side nito. If ang account ay debit side ang normal balance, para i-close ito ay kailangan
mo lang siyang irecord sa credit side at ang kasamang account nito ay ang Income
Summary.

1. To close income accounts

Revenue/Income
Income Summary
Since ang normal balance ng income ay credit kaya ide-debit ito.
2. To close expense accounts
Income Summary
Expenses
Since ang normal balance ng expense ay debit kaya ice-credit ito.

3. To close the balance of Income Summary account (credit balance) – meaning profit
Income Summary
Capital
Since ang profit ay increase in capital kaya nakacredit ang capital which is its normal
balance.

To close the balance of Income Summary account (debit balance) – meaning loss
Capital
Income Summary
Since ang loss ay decrease in capital kaya nakadebit ang capital.

4. To close the drawing account

Capital
Drawing
Since ang drawing ay decrease in capital kaya nakadebit ang capital.

Sana nakatulong ito kahit papaano. Goodluck sa studies!!!

“An investment in knowledge pays the best interest.”

-Benjamin Franklin