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    Adjusting Entries

    Uploaded by

    shiela
    1) Adjusting entries are journal entries made at the end of the accounting period to update the books. 2) Common types of adjusting entries include accruing income and expenses, deferring income and expenses, and recording depreciation and bad debt expenses. 3) Adjusting entries ensure revenues and expenses are reported in the proper accounting period under the accrual basis of accounting.

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    © All Rights Reserved
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    Adjusting Entries

    Uploaded by

    shiela
    17 views21 pages
    1) Adjusting entries are journal entries made at the end of the accounting period to update the books. 2) Common types of adjusting entries include accruing income and expenses, deferring income and expenses, and recording depreciation and bad debt expenses. 3) Adjusting entries ensure revenues and expenses are reported in the proper accounting period under the accrual basis of accounting.

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    1) Adjusting entries are journal entries made at the end of the accounting period to update the books. 2) Common types of adjusting entries include accruing income and expenses, deferring income and expenses, and recording depreciation and bad debt expenses. 3) Adjusting entries ensure revenues and expenses are reported in the proper accounting period under the accrual basis of accounting.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    17 views21 pages

    Adjusting Entries

    Uploaded by

    shiela
    1) Adjusting entries are journal entries made at the end of the accounting period to update the books. 2) Common types of adjusting entries include accruing income and expenses, deferring income and expenses, and recording depreciation and bad debt expenses. 3) Adjusting entries ensure revenues and expenses are reported in the proper accounting period under the accrual basis of accounting.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    BSOA

    Adjusting
    Entries
    1

    Ma'am Shie
    2
    Accounting Cycle
     1. Journalizing – The process of recording the transactions in the
    journal/s(books of original entry)
     2. Posting – The process of transferring the entries in the
    journal to the general ledger
     3. Preliminary Trial Balance (Unadjusted Trial Balance ) –
    Prepared to check the accuracy of posting and to prove the
    3

    equality of debits and credits.


     4. Adjusting Entries – Prepared at the END of the accounting
    period to update the books.
    Accounting Cycle
    5. Adjusted Trial Balance /Worksheet (Working Paper) – To facilitate the preparation of the Financial
    Statements.
    Showing the adjustments in the worksheet and then classifying all the accounts into Real accounts
    (Balance Sheet accounts) and Nominal Accounts (Income Statement statement).
    6. Financial Statements – Accounting reports prepared at the end of the accounting period.
    4
    Income Statement (Statement of Comprehensive Income) , Balance Sheet (Statement of Financial Position)
    , Statement of Changes in Owner’s Equity and Statement of Cash Flows.
    COMPLETING THE ACCOUNTING PROCESS (CLOSING THE BOOKS)
    Accounting Cycle
    7. Closing Entries – Entries Prepared at the end of the accounting period.
    Nominal Accounts are closed by REVERSING the position of the accounts (accounts with debit balances
    are credited and accounts with credit balances are debited)
    Income and Expense Summary Account is used as balancing account (credit balance means NET INCOME,
    debit balance means NET LOSS).
    5

     Closed to the Drawing Account of the owner


     Closed to the CAPITAL ACCOUNT of the owner
    Accounting Cycle
    8. Post-Closing Trial Balance
    Prepared after the closing entries
    Trial Balance of all Real accounts
    Real Accounts only (because nominal are already closed)
    Basis for preparing the opening entry in the new books of accounts.
    9. Ruling the Ledger (Closing the Books)
    Books of accounts (journals and ledgers) are registered with the Bureau of Internal Revenue (year
    to year basis)
    Getting the total debits and credits of all6 the accounts and then double-ruling the totals.
    10. Reversing Entries
     Reversing the Adjusting Entries
     Expense method (of prepayments)
     Income method (advance collections)
     Accrued Expenses
     Accrued Income
    To report all To report all
    revenues earned expenses incurred
    during the to produce the
    revenues during the
    Reasons to
    accounting period
    accounting period

    Adjust the To report


    accurately the
    To report
    accurately the

    Trial balance
    assets on the
    7
    liabilities on the
    balance sheet. Some balance sheet date.
    may have been Expenses may have
    USED UP during the been incurred but
    accounting period not yet paid.
     To take up unrecorded income
    and expense of the period

     To split “mixed accounts” into


    their real and nominal elements.

    Adjusting  Consist of:

    Entries
     Accruals of Income and Expenses
     Deferrals of Income and Expenses
    8
    (Prepaid Expense and Unearned
    Income)
    Adjusting entries  Depreciation and Bad Debts Expense
    are like journal
    entries but made  Application:
    at the END of the  Entries involve at least 1 balance sheet
    accounting period acct and one income statement acct
     Entries affect the statement of
    comprehensive income for the period
    • CALENDAR PERIOD
    • January 1-Dec 31
    • Generally used
    • FISCAL YEAR
    ACCOUNTING • Any 12month other
    than December
    PERIOD 9 • Ex: Feb 1-January 31 ;
    April 1-March 31
    • ACCRUAL BASIS
    • Transactions are recorded WHETHER OR NOT
    CASH HAS BEEN RECEIVED OR PAID
    • CASH BASIS
    • Transactions are NOT RECORDED UNTIL CASH is
    RECEIVED or paid.
    Cash Receipts are treated as Revenues, and Cash

    ACCRUAL VS
    Payments are handed as Expenses

    CASH BASIS 10
    ACCRUALS VS CASH
    BASIS
    ITEMS ACCRUAL BASIS CASH BASIS
    Revenue is When EARNED When COLLECTED
    recognized
    11
    Expense is When INCURRED When PAID
    recognized
    Accruals and RECOGNIZED Not RECOGNIZED
    Deferrals
    ADJUSTING ENTRIES

     Deferrals
     Accruals  Deferred  Depreciation
     Accrued Expense and Bad
    Income (Prepaid
    Debts
    Expense
     Accrued Expense
    12

     Deferred
    Expense Income
    (Unearned
    Income)
    1 :
    ST ACCRUALS
    • Accrue – provision/to recognize (to accrue)
    • ACCRUED REVENUE/INCOME – Income EARNED but NOT YET COLLECTED.

     Adjusting Entry:
    Accrued (appropriate)receivable account xxx
    Revenue Acct xxx “ACCRUE”
    To recognize revenue earned means UNPAID
    (if expenses), or
    13
    UNCOLLECTED
    ACCRUED EXPENSE – Expenses INCURRED but NOT YET PAID. (if income)

     Adjusting Entry:
    Expense Acct xxx
    Liability Acct xxx
    To recognize expense incurred
    • ACCRUED REVENUE/INCOME
    • Income already EARNED but NOT YET
    COLLECTED

    Example 1: On Dec 1,2021, SR Repair business

    ACCRUED rendered a monthly service to a customer


    amounting to P 20,000 with an agreement

    REVENUE/
    that the payment will be made next month.

    INCOME 14
    • ENTRIES
    • December 31,2021
    Accounts Receivable 20,000
    An ASSET
    Repair Service Income 20,000
    (RECEIVABLE) To record repair service rendered for
    December
    • ACCRUED REVENUE/INCOME
    • Income already EARNED but NOT YET
    COLLECTED

    Example 2: On Dec 1,2021, SR Repair business


    received a promissory note amounting to P
    500,000 at 10% annual interest. No journal
    entry was made in the general journal for the

    ACCRUED interest income.


    • Dec 1,2021

    REVENUE/
    Notes Receivable 500,000
    Repair Service Income 500,000
    To record repair service rendered

    INCOME
    15

    Interest is computed as follows:


    I=PRT
    P500,000 x .10 x 1/12 = 4,167.67
    • Adjusting entry:
    • December 31,2021
    Interest Receivable 4,167.67
    Interest Income 4,167.67
    To record int inc for december
    • ACCRUED EXPENSE
    • Expenses Incurred but NOT yet PAID

    Example: On December 2021, SR Repair


    business received a Meralco bill for the month
    of November and December. The bill is paid
    every 15th of the following month.
    The meralco bill contains P4,000 (November)
    P3,000 (December)
    ACCRUED
    EXPENSE ENTRIES:
    • December 15,2021
    16

    Utilities Expense 4,000


    A LIABILITY (Ex: Cash 4,000
    Utilities payable) To record paid bill for November
    • December 31,2021
    Utilities Expense 3,000
    Utilities payable 3,000
    To record bill for December not yet paid
    DEFERRALS
    • Deferred – (PREPAID – If expenses) (pre-collected-if INCOME
    • DEFERRED EXPENSE/PREPAID EXPENSE – Expenses NOT YET INCURRED but already
    PAID.

    ASSET METHOD EXPENSE METHOD


    Initial journal entry:
    Prepaid Asset xxx Expense Account xxx
    Cash xxx 17
    Cash xxx

    Adjusting entry(end of acctng


    period)
    Expense Account xxx Prepaid Asset xxx
    Prepaid Asset xxx Expense Account xxx
    DEFERRALS
    • DEFERRED EXPENSE/PREPAID EXPENSE
    Sample Transaction: On Dec. 1,2021 SR Repair service paid 3months rental for P15,000.
    ASSET METHOD EXPENSE METHOD
    Initial journal entry:
    Prepaid Rent 15,000 Rent Expense 15,000
    Cash 15,000 Cash 15,000
    To record advance rental for 3mos. To record advance rental for 3mos.

    18

    Adjusting entry(end of acctng period)


    Rent Expense 5,000 Prepaid Rent 10,000
    Prepaid Rent 5,000 Rent Expense 10,000
    To adjust the expense portion of To adjust the expense portion of
    prepayment. prepayment.
    DEFERRALS
    • DEFERRED REVENUE/UNEARNED INCOME – Income NOT YET EARNED but already
    collected. (LIABILITY)

    LIABILITY METHOD INCOME METHOD


    Initial journal entry:
    Cash xxx Cash xxx
    Deferred Income/Unearned Rev 19
    xxx Revenue Account xxx

    Adjusting entry(end of acctng period)


    Deferred Inc/Unearned Rev xxx Revenue Account xxx
    Revenue Account xxx Deferred Inc/Unearned Rev xxx
    DEFERRALS
    • DEFERRED REVENUE/UNEARNED INCOME
    Sample Transaction: On Dec. 1,2021 SR Company received 3months rental for
    P30,000. INCOME METHOD LIABILITY METHOD
    Initial journal entry: Dec 1,2021
    Cash 30,000 Cash 30,000
    Rental Income 30,000 Deferred/Unearned Rev 30,000
    To record rental income for 3mos. To record the advance

    20

    Adjusting entry(end of acctng


    period) Dec 31,2021
    Rental income 20,000 Deferred/Unearned Inc 10,000
    Deferred/Unearned Inc Rental income 10,000
    20,000
    To record the unearned rental To record the earned portion of
    income. unearned rev.
    Thank You!
    Do you have any questions for me before we go?
    21

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