Check policy compliance Prepare policy compliance report ADJUSTING JOURNAL ENTRIES Are entries to update the accounts prior to the preparation of Financial Statements because they affect more than once accounting period. Transactions are apportioned properly between the accounting period affected.
Following are the accounts subjected to adjustments:
1. PREPAYMENTS – are expenses already paid but not yet incurred or used.
Asset method: Journal entry upon payment
Prepaid Expense xx Cash xx
Adjusting journal entry at the end of the accounting period:
Expense xx Prepaid Expense xx
Note: The amount on the adjusting entry represents the expired or used portion of the payment.
EXAMPLE1: On October 1, 2015 Y Co. paid one-year advance rent for P25,000. Give the adjusting journal entry on December 31, 2015
Rent Expense 6,000
Prepaid Expense 6,000 (P24,000/12 x 3 )
EXAMPLE2: On March 31, 2015, M Co. paid P72,000 insurance premium for 2 years. Give the adjusting journal entry on May 31, 2015.
Insurance Premium 6,000
Prepaid Insurance 6,000 (P72,000/2yrs = 36,000/12months x 2 )
EXAMPLE3: Supplies account on January 1, showed a balance of P7,000. On December 31,
2015, supplies on hand amount to P2,000.
Supplies Expense 5,000
Supplies 5,000 To record supplies used for the year.
EXAMPLE4: Supplies account showed a balance of P12,000. Supplies used during the year amounted to P4,000. Give the adjusting journal entry on December 31.
Supplies Expense 4,000
Supplies 4,0000 To record supplies used for the year. 2. UNEARNED OR DEFERRED INCOME – is income already received but not yet earned
Liability method: Journal entry upon receipt of cash
Cash xx Unearned Income xx Received cash for services to be rendered
Adjusting journal entry at the end of the accounting period:
Unearned Income xx Income xx To record earned portion of the liability.
EXAMPLE1: On November 30, 2015, A Co. received P36,000 advance rental for 6 months. Give the adjusting journal entry on December 31, 2015.
Unearned Rent Income 6,000
Rent Income 6,000
EXAMPLE2: On May 1, Dr. Young received P60,000 for medical fees to be rendered in the next 3 months. Give the adjusting Journal Entry at the end of May.
Unearned Medical Fees 20,000
Medical Fees 20,000
3. ACCRUED EXPENSES – expenses already incurred but not yet paid.
Adjusting Journal Entry at the end of the accounting period:
Expenses xx Expense Payable xx To record unpaid expenses
EXAMPLE1: Unpaid salaries at the end of December 31, 2015 amounted to P20,000
Salaries Expense 20,000
Salaries Payable 20,000 EXAMPLE2: The company received a telephone bill in the amount of P1,200 on December 29, 2015 which the company intends to pay of January 5, 2016.
Telephone / Utilities Expense 1,200
Utilities Payable 1,200 4. ACCRUED INCOME – is income already earned but not yet received.
Income Receivable xx Income xx To record income earned.
EXAMPLE1: A one-year 10% note receivable in the amount of P100,000 was received on January 1, 2015. The interest and the principal are payable on maturity date. Give the adjusting Journal Entry on June 30, 2015
Interest Receivable 5,000
Interest Income 5,000 To record interest income earned. Computation: Interest = Principal - P100,000 x 10% = P10,000 / 12 months = P833.333333333 = P833.3333333333333 x 6 months = P5,000
5. BAD DEBTS / DOUBTFUL ACCOUNTS are losses due to uncollectible accounts.
Adjusting Journal Entry at the end of the accounting period
Bad Debts xx Allowance for Bad Debts xx To record estimated uncollectible accounts.
EXAMPLE1: Accounts receivable shows a balance of P50,000. It is estimated that 10% of this is uncollectible. Give the adjusting journal entry on December 31, 2015 for the provision of the estimated uncollectible account.
Bad Debts Expense 5,000
Allowance for Bad Debts 5,000 To record uncollectible accounts receivable
EXAMPLE2: Accounts Receivable shows a balance or P50,000. It is estimated that 10% of this is uncollectible. Allowance for Bad Debts per general ledger has a blance of P3,000. Give the adjusting journal entry on December 31, 2017 for the provision of the estimated uncollectible account.
Bad Debt Expense 2,000
Allowance for Bad Debts 2,000 To record bad debts. 6. DEPRECIATION EXPENSE – is the allocation of plant asset cost over its estimated useful life. Thus is the expense allotted for the wear and tear of property, plant and equipment due to passage of time.
Three factors considered in computing the depreciation expense:
a. COST – is the purchase price of the depreciable asset. b. SALVAGE VALUE – is the estimated value of the asset at the end of its useful life. c. 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.
FORMULA: Cost P xx Less: Salvage Value xx Depreciable Cost xx Divided by: Estimated Useful Life xx Annual Depreciation P xx ==
EXAMPLE1: A building with an estimated useful life of 20years finished construction on April 1, 2012. The cost of the building is 2.6 million with an estimated salvage value of P200,000. Give the Adjusting Journal Entry to record the depreciation of the building.
a. December 31, 2012 90,000
b. December 31, 2013 120,000 c. December 31, 2014 120,000
Depreciation Expense 90,000
Accumulated Depreciation 90,000 To record depreciation for the year 2012
Asset 2,600,000 Less: Salvage Value 200,000 Depreciable Cot 2,400,000 Divide: Estimated life 20 years Annual Depreciation 120,000 vvvvvvvvv
