Discussion on Adjusting entries:

Items that require adjusting entries on the cut-off date / reporting date / financial statement date.
1. Accruals = Recognize revenue or income when earned regardless of when it is collected and recognize expense when incurr
a. Accrued income = income is earned but not collected
b. Accrued expense = expense is incurred but not paid
2. Deferrals = Cash has been collected from customers but that cash has not been earned
while expense has been paid but that expense has not been incurred.
a. Pre-collection of Income = income is collected in advance but not yet earned
b. Pre - payment of expenses = expenses is paid in advance but not yet incurred
3. Provision for estimated uncollectible accounts ( bad debts)
4. Provison for Depreciation of Property, Plant and Equipment
5. Adjustment on Merchandise Inventory

ACCRUALS CUT-OFF DATE / FINANCIAL STATEMENT DATE/ REPORTING DATE = DECEMBER 31, 2019

1 On November 15, 2019, the business borrowed P 800,000 at 8 % payable 2 year after.
JOURNAL ENTRY ON NOV. 15 DECEMBER 31, 2019 - ADJUSTING ENTRY
CASH 800,000 INTEREST EXPENSE
NOTE PAYABLE 800,000 INTEREST PAYABLE / ACCRUED INTEREST EXPENSE
NOTE: The entity has an obligation to pay 1.5 months interest from nov.
however, since the payment of interest is after 2 years, no int
December 31, 2019 which resulted to an understatement an

2 Rent income of 20,000 was uncollected as of year end.

RENT RECEIVABLE/ ACCRUED RENT INCOME 20,000
RENT INCOME 20,000

3 The business received a 24 months, 10% note from customer on October 1, 2019 amounting to P 86,000 for services rend
JOURNAL ENTRY DECEMBER 31, 2019 - ADJUSTING ENTRY
NOTES RECEIVABLE 86000 INTEREST RECEIVABLE/ACCRUED INTEREST INCOME
CASH 86000 INTEREST INCOME

4 November 15, 2019, borrowed P 350,000 from a multipurpose cooperative on a 18-months, 8% per annum note payable.
JOURNAL ENTRY DECEMBER 31, 2019 - ADJUSTING ENTRY
CASH 350,000 INTEREST EXPENSE
NOTE PAYABLE 350,000 INTEREST PAYABLE / ACCRUED INTEREST EXPENSE

5 On Monday, January 3, 2020, the company, which is on a six- day workweek, will pay its regular salaried employees P 120

DECEMBER 31, 2019 - ADJUSTING ENTRY

SALARIES EXPENSE 100,000 ( 120,000/6 days x 5 days fro
SALARIES PAYABLE /ACCRUED SALARIES EXPENSE 100,000
6 Weekly payroll is P 320,000, paid every day Saturday for a six -day workweek. Assume December 31, 2019, falls on a Thu
DECEMBER 31, 2019 - ADJUSTING ENTRY
SALARIES EXPENSE 213,333 ( 320,000/6 days x 4 days fro
SALARIES PAYABLE /ACCRUED SALARIES EXPENSE 213,333

6 Weekly payroll is P 150,000, paid every day Saturday for a five -day workweek. Assume December 31, 2019, falls on a we
DECEMBER 31, 2019 - ADJUSTING ENTRY
SALARIES EXPENSE 90,000 ( 150,000 / 5 x 3 days from M
SALARIES PAYABLE /ACCRUED SALARIES EXPENSE 90,000

8 Accrued interest expense for the year , P 5,000. DECEMBER 31, 2019 - ADJUSTING ENTRY
INTEREST EXPENSE 5,000
INTEREST PAYABLE 5,000

9 Unpaid salaries expense for the period, 15,000. DECEMBER 31, 2019 - ADJUSTING ENTRY

SALARIES EXPENSE 15,000

SALARIES PAYABLE 15,000
###
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 ng date / financial statement date.
less of when it is collected and recognize expense when incurred whether paid or not.
Note: Income is deemed/ considered earned when service is already pe
Expense is considered
cash has not been earned Expense is considered incurred when there's legal obligation to pa
not been incurred.
e but not yet earned NOTE: Expense is reported only in the income statement when it is incu
but not yet incurred Income is reported only in the income statement when it is earne

REPORTING DATE = DECEMBER 31, 2019

at 8 % payable 2 year after.

DECEMBER 31, 2019 - ADJUSTING ENTRY
INTEREST EXPENSE 8,000 ( 800,000 X 8% X 1.5/12) 1.5 MONTHS FROM NOV.15 TO DEC 31)
INTEREST PAYABLE / ACCRUED INTEREST EXPENSE 8,000
e entity has an obligation to pay 1.5 months interest from nov.15 to dec 31,2015, thus 8,000 interest is incurred already and must be repo
however, since the payment of interest is after 2 years, no interest expense has been recorded in the book as of
December 31, 2019 which resulted to an understatement an interest expense which means that adjusting entry should be made to reco

DECEMBER 31, 2019 - ADJUSTING ENTRY

RENT RECEIVABLE/ ACCRUED RENT INCOME 20,000 NOTE: Since income is earned already it must be reported in the income statemen
RENT INCOME 20,000

er on October 1, 2019 amounting to P 86,000 for services rendered.

DECEMBER 31, 2019 - ADJUSTING ENTRY
INTEREST RECEIVABLE/ACCRUED INTEREST INCOME 2,150 ( 86,000 X 10% X 3/12) = 3 MONTHS FROM OCT 1 TO DEC 31, 201
INTEREST INCOME 2,150

ose cooperative on a 18-months, 8% per annum note payable. The principal plus interest is payable at the end of the term.
DECEMBER 31, 2019 - ADJUSTING ENTRY
INTEREST EXPENSE 3,500 ( 350,000X8%X1.5/12) = 1.5 MONTHS FROM NOV.15 TO DEC 31,
INTEREST PAYABLE / ACCRUED INTEREST EXPENSE 3,500

x- day workweek, will pay its regular salaried employees P 120,000.

DECEMBER 31, 2019 - ADJUSTING ENTRY COMPUTATION

SALARIES EXPENSE 100,000 ( 120,000/6 days x 5 days from M to F) M T W TH
SALARIES PAYABLE /ACCRUED SALARIES EXPENSE 100,000 Dec-27 Dec-28 Dec-29 Dec-30
INCURRED BUT NOT RECORDED
six -day workweek. Assume December 31, 2019, falls on a Thursday so the employees will not be paid until Saturday.
DECEMBER 31, 2019 - ADJUSTING ENTRY COMPUTATION
SALARIES EXPENSE 213,333 ( 320,000/6 days x 4 days from M to TH) M T W TH
SALARIES PAYABLE /ACCRUED SALARIES EXPENSE 213,333 Dec-28 Dec-29 Dec-30 Dec-31
4 days unpaid and unrecorded

five -day workweek. Assume December 31, 2019, falls on a wednesday so the employees will not be paid until Saturday.
DECEMBER 31, 2019 - ADJUSTING ENTRY COMPUTATION
SALARIES EXPENSE 90,000 ( 150,000 / 5 x 3 days from M to W) M T W TH
SALARIES PAYABLE /ACCRUED SALARIES EXPENSE 90,000 Dec-29 Dec-30 Dec-31 Jan-01
4 days unpaid and unrecorded

DECEMBER 31, 2019 - ADJUSTING ENTRY

INTEREST EXPENSE 5,000
INTEREST PAYABLE 5,000

DECEMBER 31, 2019 - ADJUSTING ENTRY

SALARIES EXPENSE 15,000

SALARIES PAYABLE 15,000
 en service is already performed/ rendered

e's legal obligation to pay. ( It is already used/ consumed/expired.

atement when it is incurred

tement when it is earned.

OM NOV.15 TO DEC 31)

eady and must be reported in the income statement,

hould be made to record the interest expense at year end.

in the income statement .

M OCT 1 TO DEC 31, 2019

OM NOV.15 TO DEC 31, 2019

CUT-OFF DATE
F SAT SUN M T W TH F SAT SUN
Dec-31 Jan-01 Jan-02 Jan-03
OT RECORDED NOTE: The employees will work from Monday to Saturday since it's a six day workweek, thus the
 entity will pay its employees' salaries on Saturday after the cut-off date which means that the salaries
expense from Monday to Friday was not yet recorded since it's unpaid at year end.

F SAT NOTE: The payday is on Jan 02, which means that as of December 31, 2019, salaries expense
Jan-01 Jan-02 of 4 days was not yet recorded since it's not yet paid at year end.
PAYDAY

F NOTE: The payday is on Jan 02, which means that as of December 31, 2019, salaries expense
Jan-02 of 3 days was not yet recorded since it's not yet paid at year end.
PAYDAY
he salaries

ries expense