Fundamentals of

Accountancy, Business
and Management 1
ONLINE CLASS
LECTURE
IN OUR VIRTUAL CLASSROOM

Keep your Use the chat box

microphone on for answering and
MUTE. queries
Respect each other

Wait until your Take down

teacher recognize important details
you
 PRAYER
“Let us place ourselves in the presence of
God…”
FAB THE ADJUSTING
M 1 ENTRIES
Financial report deals with the quantitative
information of the company’s assets, liabilities, equity,
revenue and expenses. But also it has a qualitative
characteristic; Fundamental qualitative characteristic
and enhance qualitative characteristic.

Quality of the financial report must maintain an

accurate data so that it will be useful in making
business decision.
FAB THE ADJUSTINGE
M 1 Ms.ENTRIES
Jackie Caab invested in a Computer Shop Business which
offers services like photocopying, printing, and lamination. The
following are transactions of Caab Computer shop at the
beginning of their 1st month operation.

May 1 Bought Computers and Printer, 150,000.

Purchases Bond Papers, Inks and other supplies

for printing 5,000

Bought Computer desk and chairs.
Paid 6 months’ insurance for the computer shop,
6,000.
Adjusting Entries
The cash basis means recording transaction if there
is a flow of cash. Revenue recorded if the cash is
received and Expense recorded if the cash is
disbursed.

Unlike to Accrual basis, recording revenue the time

it was earned and expense the time it was incurred
regardless of payment.
Adjusting Entries
Adjusting of Accounts happens at the end of every
accounting period, whether month, quarter or year. This is
the next step after the preparation of the unadjusted trial
balance and before the preparation of financial statements.

It is necessary to update or correct entries for the accuracy of

the report. Misrepresentation of financial reports will lead to
incompetent decision making
Adjusting Entries

Accounting is okay until

ADJUSTING HAPPENS.
“It is NOT OKAY to
NOT BE OKAY”
Adjusting Entries

DEFERRALS
a revenue already collected but not yet rendered/delivered
we called these deferrals as Unearned Revenue (Liability
Account)
EXAMPLE: Received payment from customer
for goods that will be deliver next week.
 DEFERRALS: Unearned Revenue
LIABILTY METHOD INCOME METHOD
Original Entry
Cash(A) Cash(A)
Unearned Service Revenue(L) Service Revenue (I)

Adjusting Entry
Unearned Service Revenue(L) Revenue(I)
Service Revenue(I) Unearned Service Revenue(I)

Original Entry;

Liability method, means recording the advance payment as the liability of the company.

Income method, means recording the advance payments as already an income of the company.

Adjusting Entry;

Liability method, update of unearned revenue that already rendered to customer, it decreases the liability account.

Income Method, update of revenue that already rendered to customer. It decreases the income account.
 DEFERRALS: Unearned Revenue
Example;
On Sept 01, Received advance payment from customer for Services, 30,000 and On Sept. 30, 30% of the
service already rendered to customer.
Amount of advance payment: 30,000
Amount of revenue rendered: 9,000 (30,000 x 30% or .3)
Amount of unearned revenue: 21,000 (30,000 – 9,000 already rendered)

LIABILTY METHOD INCOME METHOD

Original Dr. Cash 30,000 Dr. Cash 30,000

Entry Cr. Unearned Service Revenue(L) 30,000 Cr. Service Revenue (I) 30,000

Dr. Unearned Service Revenue(L) 9,000 Dr. Ser. Revenue(I) 21,000

Adjusting Cr. Service Revenue(I) 9,000 Cr. Unearned Ser. Revenue(L 21,000
Entry
Adjusting Entries

DEFERRALS
expenses paid but not yet incurred. We called this as
Prepaid Expense (Asset Account)

Example: The company paid 3 months’ rent

amounting to 15,000.
 DEFERRALS: Prepaid Expense
ASSET METHOD EXPENSE METHOD

Original Dr. Prepaid Expense(A) Dr. Expense (E)

Entry Cr. Cash Cr. Cash

Adjusting Dr. Expense Dr. Prepaid Expense

Entry Cr. Prepaid Expense Cr. Expense
In Original Entry

Asset method, we recorded our prepayments as owned by the company. It increases the assets.

Expense method, we recorded our prepayments as already an expense of the company. It increases the expense.

In adjusting entry

Asset method, we update the asset already used or consumed by the company and make it as the company’s expense.

Expense method, we update that the expense recorded is an asset if it is not yet used or consumed.
 DEFERRALS: Prepaid Expenses
On July 01 Paid 6 months Insurance in advance, 60,000 and on October 31 4 months
Insurance was expired, 40,000.

Amount of prepayment: 60,000

Months covered: 6 months
Amount per month: 10,000 (60,000/6)

To adjust,
Months already expired: 4 months
Amount of insurance expired: 40,000 (10,000 per month X 4 months)

Analysis:
Months left unexpired: 2 (6 moths – 4 months expired)
Amount of insurance unexpired: 20,000 (10,000 per month X 2 months unexpired)

Amount of Prepaid Insurance: 20,000 (60,000 – 40,000 expired)

Amount of Insurance Expense incurred: 40,000(60,000-20,000 unexpired)
 DEFERRALS: Prepaid Expenses
ASSET METHOD EXPENSE METHOD
Original Dr. Prepaid Insurance 60,000 Dr. Insurance Expense 60,000
Entry Cr. Cash 60,000 Cr. Cash 60,000

Adjusting Dr. Insurance Expense 40,000 Dr. Prepaid Insurance 20,000

Entry Cr. Prepaid Insurance 40,000 Cr. Insurance Expense 20,000
 DEFERRALS: SUPPLIES
Supplies
Supplies is considered as asset of the company, it consumed by the
company for its operation so the supply purchased at the beginning of
the month might not be the same amount of supply at the end of the
month.
To record the original entry for supply we have to;
Dr. Supplies xxx
Cr. Cash xxx
*Cash (if bought in cash) or Accounts Payable (if on account)
 DEFERRALS: SUPPLIES
Supplies is considered as asset of the company, it consumed by the company for
its operation so the supply purchased at the beginning of the month might not be
the same amount of supply at the end of the month.
To record the original entry for supply we have to;
Dr. Supplies xxx
Cr. Cash xxx
*Cash (if bought in cash) or Accounts Payable (if on account)

And to record the adjusting entry; decreasing the amount of supply and
transferring it into Supplies Expense account because it is already consumed.

Dr. Supplies Expense xxx

Cr. Supplies xxx
 DEFERRALS: SUPPLIES
Example.
The company purchased 10,000 worth of supplies at the beginning of the month. At the end of the month
the supply officer conducts a physical count of office supplies and found out that supplies on hand are
only 3,500.
Analysis:
Supplies purchased: 10,000
Supplies on hand: 3,500(by Physical counting at the end of the period)
Supplies consumed: 6,500 (10,000 – 3,500 supplies on hand)

To record the original entry for supply we have to;

Dr. Supplies 10,000
Cr. Cash 10,000

And to record the adjusting entry

Dr. Supplies Expense 6,500
Cr. Supplies 6,500
Adjusting Entries

ACCRUALS
a revenue already rendered but not yet paid is called
Accrued Revenues. This is similar to Accounts Receivable.
Example. The company billed customer on
account. The service is already rendered to the
customer but the customer did not pay yet.
Adjusting Entries
ACCRUALS
To record the accruals for revenue
Dr. Accounts Receivable xxx
Cr. Service Revenue xxx

Accrued revenues are not always deal with accounts receivable it

can be;
Dr. Interest Receivable xxx
Cr. Interest Revenue xxx
This happens when a company lend money and earned interest from it.
 ACCRUALS: Revenue
Example:
A. On December 31, Vina Palor Shop rendered service for mass wedding
couples amounting to 30,000, which is earned but unbilled.
Amount of unbilled: 30,000

Simply record;
Dr. Accounts Receivable 30,000
Cr. Service Revenue 30,000
 ACCRUALS: Revenue
B. On May 01, Palawan Women Finance Corporation lend 100,000 to its clientele with 10%
monthly interest. On May 31, PWFC will recognize the 10% interest income. PWFC is a lending
institution, they earn thru interest from principal

Amount of money lend(Principal): 100,000

Interest Rate: 10%
Term: Monthly
Interest earned per month: use I=Principal x Rate x Time, 10,000 (100,000 x 10% x 1month)

Simply record;
Dr. Interest Receivable 10,000
Cr. Interest Revenue 10,000
Adjusting Entries

ACCRUALS
 Accrued expense is a liability account in classification and
has a credit normal balance, when a company already
incurred an expense but not yet paid for the same period,
maybe will be on the next.
Adjusting Entries
ACCRUALS
Example: A company received billing from PALECO for electricity consumption for the month.
Due to some schedule of payment, the company does not settle the account immediately and
expected to settled on the next month. Due to accrual principle an expense must be recorded
whenever it was incurred even if it still unpaid. So the company must record the billing as a
liability of the company for the month.

To record the accrued expense; (Accrued Utilities)

Dr. Utilities Expense xxx
Cr. Utilities Payable xxx
Adjusting Entries
ACCRUALS
(accrued salaries)
Dr. Salaries Expense xxx
Cr. Salaries Payable xxx

This happens when the company failed to pay their personnel for
service rendered on the period and the payment date is beyond the
covered period.
Adjusting Entries
ACCRUALS
(accrued Interest)
Dr. Interest Expense xxx
Cr. Interest Payable xxx

This happen when the company has an unrecorded interest

obligation from the creditors for the covered period.
 ACCRUALS: EXPENSES
A. On May 31, The company received 5,000 electric bill and 2,000 water bill for monthly
consumption.
Analysis:
Amount of Bills for utilities: 7,000 (5,000 + 2,000)
The utilities had incurred and billing was received for the period.

Simply record;
Dr. Utilities Expenses 7,000
Cr. Utilities Payable 7,000
 ACCRUALS: EXPENSES
B. On January 01 the company borrowed 100,000 from the bank with 5% monthly interest. On January 31
the company will recognize the interest as another liability.

Analysis:
Principal amount borrowed: 100,000
Rate: 5%
Term: monthly
Interest per month: 5,000 (use I=Prt) 100,000 x 5% x 1 month (Jan 1-31)

Simply record;
Dr. Interest Expense 5,000
Cr. Interest Payable 5,000
 ACCRUALS: EXPENSES
C. The office assistant and the account executive were paid salaries on May 13 and 28. At month-end, the
employees have worked for three days (May 29,30,31) beyond the last pay period. The employees have
earned the salary for three days, but it is not due to be paid until the regular payday in June. The salary for
these three days is rightfully an expense for May, and the liabilities should reflect the company owes the
employees’ salaries for those days.

Each employee’s rate is 7,800 per month or 300 per day (7,800/26 working days). The expense to be accrued
is P1,800 (300 x 3 days’ x 2 employees). These accrued expense can be recorded as;

Simply record;
Dr. Salaries Expense 1,800
Cr. Salaries Payable 1,800
Adjusting Entries
DEPRECIATION
Depreciation Expense is an expense account , When LONG-LIVED assets are used it will
depreciate.
And the other called Accumulated Depreciation, a contra-asset account that decrease the value of
long-lived asset it depreciated. This account is an Asset in classification but has a credit normal
balance unlike other assets that is meant by contra-asset.

To record adjusting entry;

Dr. Depreciation Expense xxx
Cr. Accumulated Depreciation xxx
Adjusting Entries
DEPRECIATION
There are three factors to consider in computing the Depreciation of a Long-lived asset
a. Cost- the amount it was purchased
b. Salvage Value- the amount that this asset can be sold if it already reaches its estimated useful life.
c. Estimated useful life- this is the estimated life of the asset that can be useful to the company.

Formula: Depreciation = (Cost – Salvage Value) /

Estimated Useful life
Adjusting Entries
DEPRECIATION
There are three factors to consider in computing the Depreciation of a Long-lived asset
a. Cost- the amount it was purchased
b. Salvage Value- the amount that this asset can be sold if it already reaches its estimated useful life.
c. Estimated useful life- this is the estimated life of the asset that can be useful to the company.

Formula: Depreciation = (Cost – Salvage Value) /

Estimated Useful life
 DEPRECIATION: Straight Line method
Example. The company bought an office computer worth 35,000. With an estimated useful life of 5 years
and 10% salvage value.
Cost- 30,000
Salvage Value – 6,000 (30,000 x 10%)
Estimated Useful life – 5 years

Depreciation = (30,000 – 6,000) / 5

Depreciation = 24,000/5
Depreciation = 4,800/ year * 400/monthly

To record adjusting entry;

Dr. Depreciation Expense 4,800
Cr. Accumulated Depreciation 4,800
Adjusting Entries
DEPRECIATION
Additionally, Accumulated Depreciation will be deducted
from the Equipment it depreciated in the balances sheet
presentation. Like for Example, Office Equipment Less
Accumulated Depreciation-Office Equipment, the
difference will be called as BOOK VALUE.
Adjusting Entries
Bad Debts or Doubtful accounts
Bad debts are the amount portion of collectible account of the company that has no
possibility to collect. Bad Debts or Doubtful account is an expense account. The
counterpart of this account is the Allowance for doubtful account, this is another
contra-asset account, asset in classification but has a credit normal balance just like
accumulated depreciation.

To record adjustment for Bad Debts;

Dr. Bad Debts xxx
Cr. Allowance for Bad Debts xxx
 DEPRECIATION: Straight Line method
The company determined a 2% uncollectible from 10,000 Account Receivable

Simply get the 2% of the collectibles

200 (10,000 x. 2%)
To record adjustment for Bad Debts;
Dr. Bad Debts 200
Cr. Allowance for Bad Debts 200

Note: When Allowance for Bad Debts is deducted from the Accounts Receivable
account the answer is called NET REALIZABLE VALUE of Accounts Receivable.
Ex. 10,000 is the Accounts receivable deduct 200 allowance for bad debts then you
will get the 9,800 Net Realizable Value.
TRY THIS OUT!
Adjustment at the month end for My Laundry Lady Laundry Shop
a. Laundry supplies are 10,000. As per Physical Count Laundry Supplies on
Hand: P 4,200 at the end of the month.
b. Prepaid Rent(3months) amounting to 15,000. 1st month already used.
c. 35% of Unearned service already rendered. Unearned laundry Income
was 10,000.
d. Laundry Machines costing 105,000 that has 5 years estimated life and
5% salvage value depreciated monthly using the straight line method.
e. 2% of Receivables are considered doubtful Accounts Receivable is 2,500.
ILLUSTRATED ANSWER
a. Laundry supplies are 10,000. As per Physical Count Laundry
Supplies on Hand: P 4,200 at the end of the month.

GENERAL JOURNAL
DATE Account Titles and Explanation Ref. Debit Credit

May 31 Laundry Supplies Expense 5,800

Laundry Supplies 5,800
To record adjustment for LS
ILLUSTRATED ANSWER
b. Prepaid Rent(3months) amounting to 15,000. 1st month already
used.

GENERAL JOURNAL
DATE Account Titles and Explanation Ref. Debit Credit

May 31 Rent Expense 5,000

Prepaid Rent 5,000
To record adjustment Rent
ILLUSTRATED ANSWER
c. 35% of Unearned service already rendered. Unearned laundry
Income was 10,000.

GENERAL JOURNAL
DATE Account Titles and Explanation Ref. Debit Credit

May 31 Unearned Laundry Income 3,500

Laundry Service Income 3,500
To record adjustment for ULI
ILLUSTRATED ANSWER
d. Laundry Machines costing 105,000 that has 5 years estimated life
and 5% salvage value depreciated monthly using the straight line
method.

GENERAL JOURNAL
DATE Account Titles and Explanation Ref. Debit Credit

May 31 Depreciation Expense-LM 1,662.5

Accumulated Depreciation-LM 1,662.5
To record Depreciation for LM
ILLUSTRATED ANSWER
e. 2% of Receivables are considered doubtful Accounts Receivable is
2,500.

GENERAL JOURNAL
DATE Account Titles and Explanation Ref. Debit Credit

May 31 Bad Debts 50

Allowance for Bad Debts 50
To record Bad debts portion of
AR
To wrap up the lesson for adjusting
entries please remember the following;
a. Adjusting Entries doesn’t include cash
b. Adjusting Entries prepares every period end (Monthly, Quarterly, Yearly)
depending on the reporting period
c. Period varies if the company has their own fiscal year. Like June 1,2018
to June 30, 2019
d. Land is a long-lived asset but it doesn’t depreciate.
L-Land A-appreciate N-never D-depreciate