ADJUSTING JOURNAL ENTRIES

DEFINITION AND IMPORTANCE OF

ADJUSTING JOURNAL ENTRIES

 ADJUSTING JOURNAL ENTRIES-ARE ENTRIES

USED TO UPDATE THE ACCOUNTS PRIOR TO
THE PREPARATION OF FINANCIAL STATEMENTS
BECAUSE THEY AFFECT MORE THAN ONE
ACCOUNTING PERIOD
 PREPAYMENTS
 ARE EXPENSES ALREADY PAID BUT NOT
YET INCURRED OR USED
FOLLOWING ARE THE ACCOUNTS
SUBJECTED TO ADJUSTMENTS:
ASSET METHOD
JOURNAL ENTRY UPON PAYMENT
PREPAID EXPENSE XXX
CASH XXX
ADJUSTING JOURNAL ENTRY AT THE END
OF THE ACCOUNTING PERIOD
EXPENSE XXX
EXAMPLE 1

 ON APRIL 30,2016,X CO. PAID P36,000 WORTH OF

INSURANCE PREMIUM FOR TWO YEARS.GIVE THE
ADJUSTING JOURNAL ENTRY ON JUNE 30,2016
ANSWER
JOURNAL ENTRY UPON PAYMENT ON APRIL 30, 2016
PREPAID INSURANCE 36,000
CASH 36,000
PAID TWO -YEAR INSURANCE

ADJUSTING JOURNAL ENTRY AT THE END OF THE

ACCOUNTING PERIOD JUNE 30, 2016
INSURANCE EXPENSE 3,000
PREPAID INSURANCE 3,000
TO RECORD THE EXPIRED INSURANCE
Computation P36,000 = P1,500 X 2= P3,000
24
EXAMPLE 2

 SUPPLIES ACCOUNT SHOWED A BALANCE OF

P4,000.SUPPLIES USED DURING THE YEAR
AMOUNTED TO P2,300. GIVE THE ADJUSTING ENTRY
ON DEC. 31, 2016
ANSWER
 ADJUSTING JOURNAL ENTRY ON DEC. 31,2016

SUPPLIES EXPENSE 2,300

SUPPLIES 2,300
TO RECORD SUPPLIES USED FOR THE YEAR

Computation.There is no computation necessary because

the P2,300 supplies used during the year was already given
in the problem.
Example 3
 The trial balance of MONGOLIA CAFÉ
shows Kitchen Supplies and Kitchen
Supplies Expense accounts at balances of
P8,400. At year end, there are P1,480 of
supplies on hand.
 answer3
 KITCHEN SUPPLIES EXPENSE 6,920
KITCHEN SUPPLIES 6,920

Computation: 8,400 – 1,480= 6,920

DEFERRALS OR UNEARNED 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
EXAMPLE 1

 ON AUGUST 1, DR.YEE RECEIVED P90,000 FOR

DENTAL FEES TO BE RENDERED IN THE NEXT 6
MONTHS. GIVE THE ADJUSTING JOURNAL ENTRY AT
THE END OF SEPT.
 ANSWER
JOURNAL ENTRY UPON RECEIPT OF CASH ON AUGUST 1

CASH 90,000
UNEARNED DENTAL FEES 90,000
RECEIVED CASH FOR DENTALSERVICES TO BE RENDERED

ADJUSTING JOURNAL ENTRY ON SEPTEMBER 30

UNEARNED DENTAL FEES 30,000

DENTAL FEES 30,000
TO RECORD DENTAL FEES EARNED
Computation. 90,000 /6=15,000 * 2=P30,000
EXAMPLE 2

 ON DECEMBER 1,2016, PETIT CO. RECEIVED P48,000

AMOUNT OF ADVANCED RENTALS FOR 6 MONTHS.
GIVE THE ADJUSTING JOURNAL ENTRY ON DEC. 31,
2016
ANSWER
 JOURNAL ENTRY UPON RECEIPT OF CASH ON DEC.1
CASH 48,000
UNEARNED RENT INCOME 48,000
RECEIVED 6 MONTHS RENT IN ADVANCE
o ADJUSTING JOURNAL ENTRY ON DEC. 31
UNEARNED RENT INCOME 8,000
RENT INCOME 8,000
TO RECORD RENT EARNED FOR THE MONTH
Computation. 48,000/6=P8,000 *1=P8,000
Example 3
 On March 1, 2015, FINLAND Tutorials received
P60,000 representing an advance payment for
services to be rendered in November 2015. This
was booked using a real account. As of the year-
end, only 70% of the expected service was
rendered.
 answer3
 UNEARNED SERVICE REVENUE 42,000
SERVICE REVENUE 42,000

Computation:60,000 x .70=42,000
 ACCRUED EXPENSES

• ARE EXPENSES ALREADY INCURRED OR USED, BUT NOT YET

PAID
• ADJUSTING JOURNAL ENTRY AT THE END OF ACCOUNTING
PERIOD

EXPENSES XXX
EXPENSE PAYABLE /ACCRUED EXPENSE XXX
TO RECORD UNPAID EXPENSE
EXAMPLE 1

 THE COMPANY RECEIVED A MAYNILAD BILL IN THE

AMOUNT OF P9,800 ON DEC. 26, 2016. THE
COMPANY INTENDS TO PAY ON JAN. 8, 2017
ANSWER
 ADJUSTING JOURNAL ENTRY ON DEC. 31, 2016

UTILITIES EXPENSE 9,800

UTILITIES PAYABLE 9,800
TO RECORD UNPAID UTILITIES FOR THE MONTH
EXAMPLE 2

 UNPAID SALARIES AT THE END OF DEC.31,2016

AMOUNTED TO P18,800
ADJUSTING JOURNAL ENTRY ON DEC. 31,2016
ANSWER
SALARIES EXPENSE 18,800
SALARIES PAYABLE 18,800
TO RECORD UNPAID SALARIES AT YEAR END
Example 3
 On March 1,2015,Xylophone Tutorials
borrowed money from Metrobank to be
used in business.Xylophone issued an
interest bearing note for the P285,000,net
of 2% processing fee, it received. The bank
loan is payable after three years with an
annual interest of 15%. Provide the journal
entries at year-end 2015.
 answer
INTEREST EXPENSE 36,352.04
INTEREST PAYABLE/ACCRUED INT. EXPENSE 36,352.04

Computation : 285,000= net of 2%

Finding the Principal Amount
=x-0.02x
=285,000/0.98
Principal = 290,816.32
Interest =Principal x Rate x Time
= 290,816.32 x 15% x 10
Annual Interest =43,622.44
= 43,622.44/12
Monthly Int. = 3,635.20
=3,635.20 x 10
=36,352.04
 ACCRUED INCOME

 INCOME ALREADY EARNED BUT NOT YET RECEIVED

INCOME RECEIVABLE/Accrued Income XXX

INCOME XXX
TO RECORD INCOME EARNED
EXAMPLE 1

 A ONE –YEAR, 6% NOTE RECEIVABLE IN THE

AMOUNT OF P200,000 WAS RECEIVED ON JAN. 1,
2016. THE INTEREST AND THE PRINCIPAL ARE
PAYABLE ON MATURITY DATE. GIVE THE ADJUSTING
JOURNAL ENTRY ON JUNE 30, 2016
 ANSWER
 ADJUSTING JOURNAL ENTRY ON JUNE 30,2016

INTEREST RECEIVABLE 6,000

INTEREST INCOME 6,000
TO RECORD INTEREST INCOME EARNED
Computation.
Interest= Principal x Rate x Time
= P200,000 x 6% x ½ year
= P200,000 X 0.06 X ½
= P6,000
The interest for 6 months is P6,000
Example 2

 Drum Stick Chickens rendered catering services last December

15,2015. The contract price amounted to P75,000. Since no
payment has been received yet. Drum Stick did not make any
journal entry last December 15, 2015.
 answer

Accrued Service Income/ Income Receivable 75,000

Service Income 75,000
 BAD DEBTS/DOUBTFUL
ACCOUNTS/UNCOLLECTIBLE
ACCOUNTS
 BAD DEBTS/DOUBTFUL ACCOUNTS ARE LOSSES DUE TO
UNCOLLECTIBLE ACCOUNTS
• ADJUSTING JOURNAL ENTRY AT THE END OF THE
ACCOUNTING PERIOD
BAD DEBTS EXPENSE XXX
ALLOWANCE for BAD DEBTS XXX
TO RECORD ESTIMATED UNCOLLECTIBLE ACCOUNTS
OR
DOUBTFUL ACCOUNTS EXPENSE XXX
ALLOWANCE for DOUBTFUL ACCOUNTS XXX
TO RECORD ESTIMATED UNCOLLECTIBLE ACCOUNTS
EXAMPLE 1

ACCOUNTS RECEIVABLE SHOWS A BALANCE OF

P100,000. IT IS ESTIMATED THAT 8% OF THIS IS
UNCOLLECTIBLE. GIVE THE ADJUSTING JOURNAL
ENTRY ON DEC. 31, 2016 FOR THE PROVISION OF THE
ESTIMATED UNCOLLECTIBLE ACCOUNT
 ANSWER

BAD DEBTS EXPENSE 8,000

ALLOWANCE for BAD DEBTS 8,000
TO RECORD ESTIMATED UNCOLLECTIBLE ACCOUNTS

Computation. P100,000 X 0.08= P8,000

Example 2

 Accounts Receivable shows a balance of P100,000.It is estimated that

8% of this is uncollectible. Allowance for Bad Debts per general
ledger has a balance of P1,000.Give the adjusting journal entry on
December 31,2016 for the provision of the estimated uncollectible
account.
 answer

Bad Debts Expense 7,000

Allowance for Bad Debts 7,000

Note: Allowance for Doubtful Accounts

1,000 Balance before adjustment
7,000 Adjusting journal entry
8,000 required balance(end)
DEPRECIATION EXPENSE

 IS THE ALLOCATION OF PLANT ASSET COST OVER

ITS ESTIMATED USEFUL LIFE. THIS IS THE EXPENSE
ALLOTTED FOR THE WEAR AND TEAR OF
PROPERTY,PLANT, AND EQUIPMENT DUE TO
PASSAGE OF TIME
DEPRECIATION EXPENSE
 THE FF. ARE 3 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 P xxx
LESS: Salvage Value xxx
Depreciable cost P xxx
Divided by: Estimated Useful Life xxx
Annual Depreciation P xxx

Entry:
Depreciation Expense xxx
Accumulated Depreciation xxx
EXAMPLE 1
 A BUILDING WITH AN ESTIMATED USEFUL LIFE OF 30
YEARS FINISHED CONSTRUCTION ON JUNE 1,2016.
THE COST OF THE BUILDING IS 4.8 MILLION PESOS
WITH AN ESTIMATED SALVAGE VALUE OF P300,000.
GIVE THE ADJUSTING JOURNAL ENTRY ON DEC. 31,
2016 TO RECORD THE DEPRECIATION OF THE
BUILDING
 ANSWER 1
 ADJUSTING JOURNAL ENTRY ON DEC. 31, 2016

DEPRECIATION EXPENSE 87,500

ACCUMULATED DEPRECIATION 87,500
TO RECORD DEPRECIATION EXPENSE FOR THE BUILDING
Computation.
Cost P4,800.000
Less: SalvageValue 300,000
Depreciable cost P4,500,00
Divided by: Estimated Useful Life 30 years
Annual Depreciation P 150,000/12
Monthly Depreciation 12,500 x 7=87,500
Example 2

The company constructed its own building with total

cost amounting to P22,000,000. The building has an
estimated useful life of 25 years and a salvage value of
P1,000,000. The building was completed last April 30
and depreciated started after its completion.
Answer 2
DEPRECIATION EXPENSE 560,000
ACCUMULATED DEPRECIATION 560,000
TO RECORD DEPRECIATION EXPENSE FOR THE
BUILDING
Computation.
Cost P22,000,000
Less: SalvageValue 1,000,000
Depreciable cost P21,000,000
Divided by: Estimated Useful Life 25 years
Annual Depreciation P 840,000
Monthly Depreciation 840,000/12=P70,000
70,000 X 8mos.= ₱ 560,000
Example 3
AUSTRALIA Delivery needed four trucks in 2015.Two trucks
were purchased on May 1,2015 at ₱1,850,000 each and
another two trucks were purchased on July 1, 2015 at
a total price 15% higher than the May 1,2015
purchase. For this type of depreciable assets,
Australia is allocating 8% of the acquisition cost for
scrap value and estimating useful lives at 8 years.
 answer3
DEPRECIATION EXPENSE 528,329.17
ACCUMULATED DEPRECIATION 528,329.17
Computation.
Cost ₱ 3,700,000 ₱ 4,255,000
Less: SalvageValue 296,000 (340,400)
Depreciable cost ₱ 3,404,000 3,914,600
Divided by: Estimated Useful Life 8 years 8 yrs
Annual Depreciation ₱ 425,500 489,325
Monthly Depreciation ₱ 35,458.33 40,777.08
May1 to Dec. ₱ 283,666.66 July1 to Dec. ₱ 244,622.50
283,666.66 + 244,622.50 = ₱ 528,329.17
 answer3
DEPRECIATION EXPENSE 528,329.17
ACCUMULATED DEPRECIATION 528,329.17

Analysis & Computation:

May 1, 2015 July 1,2015
1,850,000 x 2=3,700,000 1,850,000 x 2 x 0.15
=3,700,000 x 0.08 =3,700,000 x 0.15
=296,000 =555,000
=3,700,000-296,000 =3,700,000 + 555,000
=3,404,000/8 =4,255,000 x 0.08
=425,500/12 =340,400
=35,458.33 x 8 = 4,255,000- 340,400
=283,666.66 =3,914,6000 / 8
=489,325/12
=40,777.08 x 6
=244,622.50

So, we will add 283,666.66 + 244,622.50=528,329.16

 APPLICATION 1

GIVE THE ADJUSTING JOURNAL ENTRIES ON DEC. 31 GIVEN

THE FF.

RENT PAID LAST JULY, AMOUNTED TO P21,000, OF WHICH

P14,000 HAS ALREADY EXPIRED.THIS WAS INITIALLY
RECORDED AS PREPAID RENT UPON PAYMENT.
answer1

RENT EXPENSE 14,000

PREPAID RENT 14,000
 APPLICATION 2

GIVE THE ADJUSTING JOURNAL ENTRIES ON DEC. 31 GIVEN

THE FF.

SUPPLIES PURCHASED DURING THE YEAR AMOUNTED TO

P2,900, OF WHICH P2,000 HAS BEEN USED DURING THE
YEAR.THE ASSET METHOD WAS USED UPON PURCHASE OF THE
SUPPLIES.
answer2

SUPPLIES EXPENSE 2,000

SUPPLIES 2,000
 APPLICATION3

GIVE THE ADJUSTING JOURNAL ENTRIES ON DEC. 31 GIVEN

THE FF.

UNEARNED INTEREST HAS A BALANCE OF P4,800, OF WHICH

P1,900 HAS ALREADY BEEN EARNED DURING THE YEAR. THE
AMOUNT WAS INITIALLY CREDITED TO UNEARNED INTEREST
UPON COLLECTION
Answer 3

UNEARNED INTEREST 1,900

INTEREST INCOME 1,900
application4
GIVE THE ADJUSTING JOURNAL ENTRIES ON DEC. 31

On March 1,2015, ANGEL Tutorials received ₱70,000

representing an advance payment for services to be
rendered in October 2015. This was booked using a
real account. As of the year-end, only 80% of the
expected service was rendered.
answer4

UNEARNED SERVICE REVENUE 56,000

SERVICE REVENUE 56,000
APPLICATION5

UNPAID SALARIES OF ITS CLEANERS AS OF DECEMBER 31 IS

P8,000.
 ANSWER5

SALARIES EXPENSE 8,000

SALARIES PAYABLE /Accrued salaries expense 8,000
APPLICATION6

On April 1,2015, Devine Tutorials borrowed money from City

Savings Bank to be used in business. Devine issued an interest
bearing note for the ₱385,000 net of 3% processing fee, it
received. Provide the adjusting entries at the year end .
 ANSWER6

INTEREST EXPENSE 44,652.06

INTEREST PAYABLE/Accrued Interest Expense 44,652.06

385,907.21 x .97=396,907.21 x .15=59,536.08/12=4,961.34 x

9=44,652.06
Application 7

UNCOLLECTIBLE ACCOUNTS AT YEAR-END IS

ESTIMATED TO BE P7,890.
 ANSWER7

BAD DEBTS EXPENSE 7,890

ALLOWANCE FOR BAD DEBTS 7,890
APPLICATION 8
ANSWER8
APPLICATION 9

DEPRECIATION EXPENSE FOR ITS EQUIPMENT, P12,000

 ANSWER9

DEPRECIATION EXPENSE-EQUIPMENT 12,000

ACCUMULATED DEPRECIATION-EQUIPMENT 12,000
 EXERCISE 1
SNOOPY ENTERPRISES PROVIDES COLLECTION SERVICES TO ITS
CUSTOMERS.YEAR-END ADJUSTING JOURNAL ENTRIES ARE
PREPARED EVERY DEC. 31 AS ITS BOOKS ARE CLOSED. MAKE THE
APPROPRIATE ADJUSTING ENTRY FOR EACH OF THE FF ITEMS:
1. UNCOLLECTIBLE ACCOUNTS AT YEAR-END IS ESTIMATED TO
BE P6,950.
2. RENT PAID LAST APRIL AMOUNTED TO P400,000,ONE
FOURTH OF WHICH HAS ALREADY EXPIRED.THIS WAS
INITIALLY RECORDED AS PREPAID RENT UPON PAYMENT.
3. DEPRECIATION EXPENSE FOR ITS TRANSPORTATION
EQUIPMENT,P6,780
4. SUPPLIES PURCHASED DURING THE YEAR AMOUNTED TO
P4,290,OF WHICH ONE- THIRD HAS BEEN USED DURING THE
YEAR.
5. UNPAID SALARIES OF ITS CLEANERS AS OF
DECEMBER 31 IS P7,460.

6. UNEARNED INTEREST HAS A BALANCE OF P3,120, OF

WHICH P2,560 HAS ALREADY BEEN EARNED DURING
THE YEAR. THE AMOUNT WAS INITIALLY CREDITED TO
UNEARNED INTEREST UPON COLLECTION.
 EXERCISE 3
Bey Cleaners closes its books every December 31 and correspondingly
prepares year-end adjusting entries. Make the appropriate adjusting
entry for each of the ff. items:
1. Last September 15, Bey Cleaners decided to sign the company for
an eight –month advertising contract for a full blast advertising of all
its products. The company received p780,000 for the contract and
the accountant credited the amount to Unearned Advertising.
2. Last August 30, the company subscribed to a business magazine
paying P3,240 for a three-year subscription to start in September.
This was recorded to Prepaid Subscription.
3. Supplies account at the beginning of the year showed a balance of
P10,800. No purchases were made during the year. Supplies used
during the year amounted to P7,100.
 4. A Machine costing P950,000,WITH A SALVAGE VALUE OF
P50,000 and an estimated useful life of 15 years is depreciated on a
straight line basis
 5. Utilities bill amounting to P3,486 was received on Dec. 27. The
company intends to pay it on January 5 the ff. year.
 6. Last May 1, the company decided to rent a garage as parking
space of its company vehicles. Nine months rent was paid in
advance in the amount of P81,000. The Asset Method was used to
record this transaction.
 7. Last June 15, the company lent Angel Co. P90,000 at 10% per
annum.
 8. Last Nov. 1, the third floor of the company building was leased
to Poseidon Enterprises. Bey Cleaners received P184,000
representing an 5-month lease contract. The Liability Method was
used to record the receipt of payment.
 9. Doubtful accounts at the end of the year are estimated to be
4% of Accounts Receivable which has a balance of P275,000.
Allowance for Doubtful Accounts has a credit balance of P9,700
per general ledger before adjustment.
 10. The company constructed its own building with total cost
amounting to P22,000,000. The building has an estimated useful
life of 25 years and a salvage value of P1,000,000. The building
was completed last April 30 and depreciated started after its
completion.
 EXERCISE 1
1.DOUBTFUL ACCOUNT EXPENSE 6,950
ALLO. FOR DOUBTFUL ACCOUNT 6,950

2.RENT EXPENSE 100,000

PREPAID RENT 100,000

3. DEPRECIATION EXPENSE-EQUIPMENT 6,780

ACCUM. DEP-EQUIPMENT 6,780

4. SUPPLIES EXPENSE 1,430

SUPPLIES 1,430
5. SALARIES EXPENSE 7,460
SALARIES PAYABLE 7,460

6. UNEARNED INTEREST 2,560

INTEREST INCOME 2,560
 EXERCISE 3
1. UNEARNED ADVERTISING INCOME 341,250
ADVERTISING INCOME 341,250

2.SUBSCRIPTION EXPENSE 360

PREPAID SUBSCRIPTION 360

3. SUPPLIES EXPENSE 7,100

SUPPLIES 7,100

4. DEPRECIATION EXPENSE-EQUIPMENT 60,000

ACCUM. DEP.-EQUIPMENT 60,000
5. UTILITIES EXPENSE 3,486
UTILITIES PAYABLE 3,486

6.RENT EXPENSE 72,000

PREPAID RENT 72,000

7.INTEREST RECEIVABLE 4,875

INTEREST INCOME 4,875

8. UNEARNED RENT 73,600

RENT INCOME 73,600

9.DOUBTFUL ACCOUNT EXPENSE 1,300

ALLO. FOR DOUBTFUL ACCOUNTS 1,300
10. DEPRECIATION EXPENSE-BUILDING 560,000
ACCUM. DEP.-BUILDING 560,000