Adjusting Journal Entries

Learning Objectives:

1. Define adjusting journal entries and know their

importance.

2. Describe the different types of adjusting journal entries.

3. Make the required adjusting journal entries fir the

different accounts.
Adjusting Journal Entries

 Adjusting Journal Entries are entries used to

update the accounts prior to the preparation of the
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
would be no over statement or understatement of
balance sheet items and income statement items.
The following are the accoubts
subjected to adjustments:

1. Prepayments are expenses already paid but not yet incurred or used.
Asset Method
Journal Entry upon payment:
Prepaid Expense xxx
Cash xxx
. Adjusting Journal Entry at the end of the accounting period.
Expense xxx
Prepaid Expense xxx
Note: The amount on the adjusting journal entry represents the expired or
used portion of the prepayment.
Example 1

 On October 1,2014,X Co. paid a one-year advance

rent for P24,000.Give the adjusting journal entry on
December 31,2014.
 Journal Entry upon payment on Oct. 1,2014
Prepaid Rent 24,000
Cash 24,000
Paid one-year rent in advance
 Adjusting Journal Entry at the end of the accounting
period Dec. 31,2014.
Rent Expense 6,000
Prepaid Rent 6,000
To record the expired rent for the year
 The P24,000 rent represents one-year or 12 months
rent. Divide 24,000 by 12 get the monthly rent.
Multiply it by 3 months representing the rent from
Oct. 1 to Dec.31,2014.
P24,000/12 x 3 = P6,000
P6,000 is therefore the expired /used rent from Oct.
1 to Dec. 31,2014.
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 P 24,000 Prepaid
Rent is not totally asset since it include 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 31,2014,B Co. paid P72,000 insurance

premium for 2 years. Give the Adjusting Journal
Entry on May 31,2014.
Journal Entry upon payment on Mar. 32,2014
Prepaid Insurance 72,000
Cash 72,000
Paid two-year insurance premium in advance
 Adjusting Journal Entry on May 31,2014
Insurance Expense 6,000
Prepaid Insurance 6,000
Computation
The 72,000 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 31,2014.
 P72,000/24 x 2 = P6,000

Expired premiun insurance, therefore to be charged to

expense is P6,000 representing the two months from
Mar. 31 to May 31,2014.
Analysis: When you paid the P72,000 for the two-year
insurance on Mar. 31,2014, you debited the asset account
Prepaid Insurance representing 24 months insurance. On
May 31,2014 which is the end of the accounting period, the
P72,000 Prepaid Insurance is not totally an asset since it
includes the two months expired or usef portion (Mar. 31 to
May 31).Hence an adjusting entry is necessary to recognize
the insurance expense for 2 months by debiting it and
decreasing the balance of prepaid insurance by crediting it.
Example 3

Supplies on account on January 1,2014.showed a

balance of P7,000.On December 31,2014,supplies on
hand amounted to P2,000.
Adjusting Journal Entry on December 31,2014
Supplies Expense. 5,000
Supplies. 5,000
To record supplies used for the year
Computation
Supplies at the beginning of the year is P7,000.At the
end of the year the remaining balanve is 2,000.The
differerence represents the supplies used during the
year. Subtract P2,000 from P7,000 to get the supplies
used during the year.
P7,000 – P2,000 = P5,000
Analysis: On January 1,2014,the asset account
Supplies has a balance of P7,000.Sinceat the end of
the year, the balance of the asset account Supplies
decreased to P2,000,the difference represents tge
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.Gives the
adjusting Journal Entry on Dec. 31,2014.
Adjusting journal entry on Dec31,2014.
Supplies Expense 4,000
Supplies 4,000
To record supplies used for the year
Computation
There is no computation necessary because the 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.
 Thank You!!!

Prepared by:
T. Rosemarie 🌹