ADJUSTING ENTRIES

Prepared by: Prof. Anita B. Catolico

CPA/MBA
ADJUSTING ENTRIES – These are
prepared at the end of the accounting
period to update the books. These are
recorded in the general journal.
PURPOSES:
1. To conform to the principle of
Matching Costs Against Revenue” which
will result in a more accurate
measurement of the net income.
2. To arrive at the correct valuation of
assets and liabilities.
3. To arrive at the correct determination
of the owner’s equity.
ACCRUED EXPENSES-ALREADY
INCURRED BUT NOT YET PAID.(L)
1. EC Co. pays its employees every Saturday.
Total weekly payroll is P35,000. Dec. 31,2020
falls on a Tuesday. 12/28
AJE:
12/31/20 Salaries Expense 15,000
 Salaries Payable 15,000
12/29-12/31 3days 35k/7 =5,000x3
1/4/21 Salaries Payable 15,000
 Salaries Exp 20,000
 Cash 35,000
2. On Nov. 8, 2020 EC Co. borrowed P400,000
from the bank. TERM-3 months at 9%p.a. I = P
xRxT
 400,000 x .09 x 53/360
Nov. 30-8 = 22 days
Dec 31
 53 days
AJE:
12/31/20 Interest Expense 5,300
 Interest Payable 5,300
ACCRUED INCOME-ALREADY
EARNED BUT NOT YET
COLLECTED. (A)
3.EC Co. leases a part of their office for
P3,000 a month starting Nov. 1, 2020.
Per contract, collection is done after every
3 months.
AJE:
12/31/20 Rent Receivable 6,000
 Rent Income 6,000
4.On Nov. 16, 2020 EC Co. received a
90-day 6% promissory note from a
customer for P200,000.
200,000 x .06 x 45/360 Nov (30-16) 14
AJE: Dec 31
12/31 Interest Receivable 1,500
 Interest Income 1,500
PREPAID EXPENSES-ALREADY PAID
BUT NOT YET INCURRED/USED.(A)
5. EC Co. paid 3 months rent in advanced on Nov.
1, 2020 for P60,000. /3 = 20k
ASSET METHOD:
11/01 Prepaid Rent 60,000
Cash 60,000
AJE:
12/31 Rent Expense 40,000
Prepaid Rent 40,000
A = 1 month 20K
E = 2 months 40K
EXPENSE METHOD:
11/01 Rent Expense60,000
 Cash 60,000
AJE:
12/31 Prepaid Rent 20,000
 Rent Expense 20,000
6. On Dec. 1, 2020 EC Co. paid P2,000
for supplies to be use for 4 months.
ASSET METHOD
12/1 Prepaid Supplies 2,000
 Cash 2,000
AJE: 12/31Supplies Expense 500
 Prepaid Supplies 500
EXPENSE M,ETHOD:
12/1 Supplies Exp. 2,000
 Cash 2,000
AJE
12/31 Prepaid Supplies 1,500
 Supplies Exp 1,500
UNEARNED INCOME- ALREADY
COLLECTED BUT NOT YET EARNED (L)
7. On Dec. 1, 2020 EC Co. received P15,000
from a tenant as advanced rent for 3 months.
INCOME METHOD:
12/01 Cash 15,000
 Rent Income 15,000
AJE:
12/31 Rent Income 10,000
 Unearned Rent Income 10,000
Inc = 5k Liab-= 10K
LIABILITY METHOD:
12/01 Cash 15,000
 Unearned Rent Income 15,000
AJE:
12/31 Unearned Rent Income 5,000
Rent Income 5,000
8. On Sept. 1, 2020 EC Co. received P12,000 from a
customer for 6 months Repairs & Maintenance
services. 12k/6 = 2K/MONTH Inc = 4months x 2K
=8K
LIABILITY METHOD:
9/1 CASH 12,000
 UNEARNED REPAIR INC 12,000
AJE:
12/31
 UNEARNED REP INC. 8,000
 REPAIR INCOME 8,000
DEPRECIATION-DECREASE IN THE
VALUE OF A NON-CURRENT ASSET
DUE TO THE ORDINARY WEAR AND
TEAR OR PASSAGE OF TIME.
COST-SCRAP VALUE
ESTIMATED LIFE x No. of
months/12
On Jan. 1, 2020 EC Co. purchased an
equipment for P80,000. Estimated life is 10
yrs with scrap value of P8,000.
AJE:
12/31/20 Depreciation Expense 7,200
 Accumulated Depreciation 7,200
80,000 – 8,000
 10 YRS AFTER 10 YRS
7,200X10=72,000 80,000-72,000=8,000
12/31/20

EQUIPMENT P80,000
LESS ACCUM. DEPRECIATION 7,200
NET BOOK VALUE P72,800
12/31/21
EQPT 80,000
LESS AC.DEP 14,400
NBV 65,600
 On July 1, 2020 EC Co. bought furniture
costing P50,000 depreciated at the rate of
10% a year. Estimated life is 10 yrs with
NO scrap value.

12/31/20 Depreciation Expense 2,500

 Accumulated Depreciation 2,500
12/31/21 dEP. Exp 5,000
 Acc Dep 5,000
BAD DEBTS OR IMPAIRMENT LOSS-
REFERS TO THE ESTIMATED
RECEIVABLES WHICH MAY NOT BE
COLLECTED.
METHODS ON COMPUTATION:
1. Percentage of Sales
2. Percentage of Accounts Receivable
3. Aging the receivables
BALANCES AS OF 12/31/20:
SALES ………… P180,000
ACCTS. RECEIVABLE …….
30,000
ALLOWANCE FOR IMPAIRMENT
LOSS……………………. 1,200
BAD DEBTS IS 1% OF SALES:
180,000 X 1% = 1,800
AJE:
12/31/20
Impairment Loss 1,800
 Allowance for Impairment Loss 1,800
BAD DEBTS IS 9% OF ACCTS.
RECEIVABLE:
30,000 X 9% = 2,700-1,200 = 1,500

AJE:
12/31/20
Impairment Loss 1,500
 Allowance for Impairment Loss 1,500
AGING OF RECEIVABLES:
Based on aging Allowance for
Impairment Loss should be increased by
P1,100.

AJE:
12/31/20
Impairment Loss 1,100
 Allowance for Impairment Loss 1,100
Based on aging Allowance for
Impairment Loss should be increased to
P2,200.
2,200 – 1,200 = 1,000
AJE:
12/31/20
Impairment Loss 1,000
 Allowance for Impairment Loss 1,000
NOW LET’S TRY!!!
1. THESUPPLIES EXPENSE SHOWED
A BALANCE OF P12,160. ON THIS
DATE, P3,160 WORTH OF SUPPLIES
REMAIN UNUSED.
2. THE ADVERTISING EXPENSE OF
P18,000 WAS PAID ON NOV. 1, 2020.
THIS AMOUNT REPRESENTS THE
ADVERTISEMENT FOR 3 MONTHS IN
THE NEWSPAPER.
3. A ONE YEAR
FIRE INSURANCE
WAS TAKEN ON AUGUST 1, 2020 IN
THE AMOUNT OF P12,000. IT WAS
CHARGED TO INSURANCE
EXPENSE.
4. A 30-DAY 6%NOTE FOR P24,000
WAS RECEIVED FROM A CUSTOMER
DATED DEC. 15, 2020.
5.SALARIES OF THE EMPLOYEES
ARE PAID EVERY 15 DAYS. UNPAID
SALARIES ON DEC. 31, 2020
AMOUNTED TO P15,650.
6. THE OFFICE EQUIPMENT
SHOWED A BALANCE OF P164,000
WITH ACCUMULATED
DEPRECIATION OF P7,000. ON JULY
1, 2020 AN EQUIPMENT COSTING
P24,000 WAS ACQUIRED. THE
EQUIPMENTS ARE DEPRECIATED AT
5% PER YEAR.
7. THERE IS AN OUTSTANDING 60-
DAY 6% NOTE PAYABLE
AMOUNTING TO P140,000 DATED
DEC. 1, 2020.
8. FURNITURES HAVING AN
ESTIMATED LIFE OF 10 YRS WITH
NO SCRAP VALUE SHOWED A
BALANCE OF P48,000 WITH
ACCUMULATED DEPRECIATION OF
P4,800.
9. A TENANT PAYS HIS MONTHLY
RENTAL OF P3,000 ON THE 15TH OF
EACH MONTH. RENT INCOME IS
CREDITED.
10. THE ACCOUNTSRECEIVABLE
SHOWED A BALANCE OF P26,000
WITH ALLOWANCE FOR
IMPAIRMENT LOSS OF P800. IT IS
ESTIMATED THAT 4% OF THE
ACCTS. RECEIVABLE ARE
UNCOLLECTIBLE.
11. THEOFFICE RENTAL IS P24,000
PER MONTH PAYABLE IN ADVANCE
EVERY 15TH DAY OF THE MONTH.
RENT EXPENSE IS DEBITED.
12.P10,000 OF THE SERVICE
INCOME REPORTED IN THE TRIAL
BALANCE IS STILL UNEARNED.
13. THEDELIVERY VAN ACQUIRED
2 YEARS AGO COSTING P800,000
WITH ACCUMULATED
DEPRECIATION OF P80,000 IS
DEPRECIATED AT THE RATE OF 5%
PER ANNUM.
14. THE LOAN WITH THE BANK
AMOUNTING TO P120,000 TAKEN ON
OCT. 2, 2020 IS PAYABLE IN 6
MONTHS WITH INTEREST OF 15%
p.a.
 TIO N
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READY FOR THE QUIZ??
SHOWN BELOW IS THE TRIAL
BALANCE FOR DEC. 31, 2020:

ACCTS RECEIVABLE P 22,500

ALLOW. FOR IMP. LOSS 1,200
NOTES RECEIVABLE 20,000
OFFICE EQPT. 92,000
ACCUM. DEPRECIATION 4,500
RENTAL INCOME 12,000
SERVICE INCOME 450,000
SUPPLIES EXPENSE 6,250
INSURANCE EXPENSE 7,200
SALARIES EXPENSE 120,000
REQUIRED:
PREPARE ADJUSTING ENTRIES FOR
DEC. 31, 2020.
1. UNUSED OFFICE SUPPLIES AT
THE END, P 320.
2. ONE-YEAR INSURANCE WAS PAID
ON APRIL 1 OF THE CURRENT YEAR.
3. OFFICE EQUIPMENT HAD A
USEFUL LIFE OF 10 YEARS WITH
SCRAP VALUE OF P2,000. IT WAS
ACQUIRED JULY 1, 2020.
4. UNEARNED RENTAL INCOME IS
1/3 OF THE AMOUNT COLLECTED.
5. SERVICE INCOME NOT YET
COLLECTED, P3,000.
6. THE 60-DAY 6% NOTE WAS
RECEIVED ON DECEMBER 1, 2020.
7. ESTIMATED BAD DEBTS IS 10%
OF THE ACCOUNTS RECEIVABLE.
8. ACCRUED SALARIES IS P12,000.
NOW LET’S CHECK!
ANSWERS:
1. Unused Supplies 320
 Supplies Expense 320
2. Prepaid Insurance 1,800
 Insurance Expense 1,800
3. Depreciation Expense 9,000
 Accumulated Depreciation 9,000
4. Rent Income 4,000
 Unearned Rent Income 4,000
5. Accounts Receivable 3,000
 Service Income 3,000
6. Interest Receivable 100
 Interest Income 100
7. Impairment Loss 1,050
 Allowance for Imp. Loss 1,050
8. Salaries Expense 12,000
 Salaries Payable 12,000
Bring 10 columns Worksheet next
meeting (2 pcs)