YOUTUBE

ACCOUNTING CYCLE-STEP 5. PREPARATION OF THE WORKSHEET INCLUDING ADJUSTING ENTRIES

THE NEED FOR ADJUSTMENTS
Adjusting entries are needed to ensure that the revenue recognition and expense recognition
principles are followed thus resulting to financial statements reporting the effects of all transactions
at the end of the period.

 REVENUE RECOGNITION PRINCIPLE

PAS No. 18, Revenue, states that revenue is recognized when it is probable that economic
benefits will flow to the enterprise and these economic benefits can be measured reliably.

Revenue should be recognized when earned. In most cases, revenue is earned in the accounting
period when the services are rendered or the goods sold are delivered.

Revenue is earned when services are rendered/goods sold are delivered.

 EXPENSE RECOGNITION PRINCIPLE

This principle directs accountants to identify all expenses incurred during the accounting period,
to measure the expenses and to match these expenses against the revenues earned during the span
of time.

If these were not the case, expense would likely be recognized as incurred.
Match expenses against the revenues earned.

BB COLLAB
DEFERRAL- postponement
 Deferred Expense/Prepaid Expense(ASSET ACCOUNT)- already paid but not yet incurred (bayad
mo na pero hindi mo pa nagagamit./paid in advance.)
A. Asset Method
DEBIT-ASSET ACCOUNT
ADJUSTMENT
DEBIT-EXPENSE ACCOUNT
CREDIT-ASSET ACCOUNT
 ONLY THE USED AMOUNT ANG IRERECORD.
B. Expense Method
DEBIT-EXPENSE ACCOUNT
ADJUSTMENT
DEBIT -ASSET ACCOUNT
CREDIT-EXPENSE ACCOUNT
 ONLY THE UNUSED AMOUNT ANG IRERECORD.

NOTE:
 Magiging expense account lang yung prepaid expense kapag nagamit na ng company
through passage of time, through use.

 Deferred Revenue/Unearned Revenue(LIABILITY ACCOUNT)- a revenue already collected but

not yet earned (nagbayad na yung customer pero hindi mo pa napeperform yung service). Laging
nakadebit dito ay cash.
A. Liability Method
DEBIT-CASH
CREDIT-LIABILITY ACCOUNT
ADJUSTMENT
DEBIT-LIABILITY ACCOUNT
CREDIT-REVENUE ACCOUNT
 THE AMOUNT WILL BE THE INCOME.
 Revenue Method
DEBIT- CASH
CREDIT- REVENUE ACCOUNT
ADJUSTMENT
DEBIT-REVENUE ACCOUNT
CREDIT-LIABILITY ACCOUNT
 THE AMOUNT WILL BE YUNG HINDI MO PA NARERECEIVE NA KITA.

ACCRUAL
 Accrued Expense (LIABILITY ACCOUNT)- an expense already incurred but not yet paid (nagamit
mo na pero hindi mo pa nababayaran)
NOTE:
 Kapag hindi mo alam kung anong account yung ilalagay mo sa credit ng accrued expense,
yan nalang ilagay mo.
 EXPENSE ACCOUNT-DEBIT
 LIABILITY ACCOUNT-CREDIT
 Most companies uses accrual basis (nirerecord na kahit wala pang cash na nilalabas) but
some are cash basis. (basta may inilabas na pera, nirerecord agad)
 Kung anong date mo lang nagamit yung accrued expense, doon mo lang irerecord sa
accounting period na yon.
 INTEREST-PRINCIPAL*RATE*TIME
 Kung kailan na-receive/issue yung primissory note, the day after yung bibilangin until the
last day.
 Accrued Revenue (ASSET ACCOUNT)- a revenue already earned but not yet received or
collected. (na-perform mo na yung service pero hindi pa nagbabayad yung customer)

NOTE:
 RECEIVABLE ACCOUNT- DEBIT
 REVENUE ACCOUNT- CREDIT

NOTE:
 Kapag sa ledger, ang nilalagay kapag nag-aadjust na, sa ITEMS-Adjusting/Adjustments.

DEPRECIATION- applicable sa mga fixed asset ng mga company.

Matching Principle- dapat may portion sa cost ng asset na kailangan mong I-expense depende sa
usefulness ng fixed asset. Dapat babawasan mo.
 Depreciation Expense- isang accounting period lang, the amount allocated for a certain period
lang. (dapat nag-zezero siya after ng accounting period.)
 Accumulated Depreciation- contra-asset account- hindi siya nagzezero out, mas lalo dapat
nadadagdagan.

A. Straight-line Method- simplest method and ang basis ng depreciation dito ay yung usefulness
ng fixed asset depende sa length of period na magagamit yung fixed asset.
 Asset Cost- magkano yung asset cost. Ito yung cost ng pinaka-PPE. Lahat ng cost na nagamit mo
ay computed din. Halimbawa ay Aircon, yung installation ay may bayad at para magamit mo,
kailangan yon kaya kasama pa din yon sa Asset cost. Ang isasama dito ay yung cost ng kung ano
yung mga nagastos mo para magamit yon.
 Estimated residual value- Amount ng fixed asset na pwede mong mabenta at the end of useful
life. Kapag gamit na gamit yung PPe, magkano na yung value nito. (salvage value, scrap value or
trade-in value.)
 Estimated useful life- depende sa company kung ilang year/months nila gagamitin yung PPE.

NOTE:
 Land lang yung hindi nagdedepreciate, hindi nababawasan yung value ng land.
 Nahhihirapan pagdating sa paglalagay ng amount.
 Sa adjusting entries lang for depreciation is debit depreciation expense and credit accumulated
 depreciation.
 Hindi nirerecord sa journal yung salvage value, yung asset cost ang nirerecord.
 Kapag wala sa problem yung depreciable time, ibig sabihin zero.
 Laging given yung useful life.

PROVISION FOR UNCOLLECTIBLE ACCOUNTS OR BAD DEBTS

-Nagbebenta ng goods or nagpoprovide ng service, may possible na may hindi ka nakokolekta na

accounts receivable from customers.
-Bad Debts, Doubtful Accounts Expense or Bad Debt Expense

Allowance for Uncollectible Accounts/Bad Debts/Doubtful Accounts- contra-receivable account

(credit ang normal balance). kapag mag-aadjust, isang expense and isang allowance account.

Expected/ Net Realizable Value (NRV)=Accounts Receivable-Allowance for Uncollectible Accounts

1. Aging of Accounts Receivable-individual assessment. Hahatiin mo, icacategorize mo, magkano

overdue na ng 10/30/90 days. Kapag nagcompute/ In-apply niyo yung rate, ang lalabas ay yung
required allowance at the end of the period.
2. Percentage of Accounts Receivable- hindi mo na kailangan I-categorize. Kung ano accounts
Receivable, yun na yon. Yung certain rate mo I-aapply mo sa total accounts receivable. Kapag ginawa
mo yon ang lalabas ay yung collectible expense.
3. Percentage of Sales- ang macocompute mo ay yung required collectible expense.