Exercise No.

4: Preparation of
Adjusting Entries
Introduction
From the trial balance, the accountant has still to go over some transactions which need to be
analyzed and recorded before preparing the financial statements.
Adjusting Entries are entries prepared at the end of the accounting period to update some
accounts and ensure their accuracy before preparing the financial statements.
There are reasons why some accounts need to be changed or updated:
• Accrued income – income already earned but were not yet collected nor recorded
• Accrued Expenses - expenses already expired but were not paid nor recorded.
• Unearned Income – advance collection recorded as a liability, but a portion of which has
been earned
• Prepaid expense – advance payment recorded as an asset but a portion of which has
already expired
• Bad Debts – clients’ accounts that may be collected anymore or are doubtful collection
• Depreciation expense – transfer of asset cost to expense based on its declining utility
value

Learning Outcomes
1. Prepare adjusting entries for accrued revenue and deferred revenue, accrued expense
and prepaid expense, bad debts and depreciation.

Materials
Online: Laptop or a cellphone, calculator
Modular: Black Ballpen answer sheet provided, calculator
Procedure

From the following selected balances and additional information, prepare for adjusting entries at
the end of the fiscal year May 31:

Debit Credit

Accounts Receivable 120,000

18% Notes Receivable 100,000

Supplies 4,500

Furniture and Fixtures 72,500

Service Fee Revenue 1,750,000

Utilities Expense 16,000

• Bad accounts are estimated to be doubtful at 5% of the account receivable

• The customer’s note is for 60 days, dated May 16.
• Used supplies amounted to Php. 500.
• Estimated residual value of furniture and fixtures is Php. 8,500 with a useful life of
10 years. Acquisition date was March 1.
• Bills for May received from PLDT Php. 2,500 from MERALCO Php. 6,000 on June 5
Answer Sheet:

Date Particulars Debit Credit

Billy young is the author of a bestseller book being published by Beta Publishing House. He
received Php. 20,000 upon signing of contract entitling him to a royalty fee of Php. 50 per copy
sold. Unearned Royalty Fees of Php. 20,000 was credited for this.

a. Beta publishing House was able to sell 210 copies. What adjusting entry will be prepared
on December 31?
Date Particulars Debit Credit

b. Assume, instead that no check was received in advance and that at the end of the year
Beta Publishing was able to sell 220 copies. Give the adjusting entry.
Date Particulars Debit Credit
The trial balance of Diana Margallo, Interior Decorator, for December 31, 2019 appears below:
Diana Margallo, Interior Decorator
Trial Balance
December 31, 2019
Cash Php. 186,000
Accounts Receivable 71,200
Prepaid Rent 19,200
Equipment 177,500
Accum. Depreciation – Equipment 4,750
Accounts Payable 18,750
Notes Payable 12,000
Margallo, Capital 300,000
Margallo, Drawings 19,000
Professional Fees 276,300
Salaries Expense 82,500
Supplies Expense 17,000
Utilities Expense 37,800
Interest Expense 1,600
Totals Php. 611,800 Php 611,800

Additional Data:
a. Prepaid rent is for October 1, 2019 to May 31, 2020
b. Depreciation rate on the equipment is 5% per year. Scrap value of Php. 35,000
c. Salaries incurred but unpaid as of December 31, Php. 12,000
d. The note was issued on December 11 for 30 days at 12%
e. Provision for bad debts is 5% of the outstanding accounts of customers
f. Supplies on hand, Php. 5,000
Required:
Prepare the adjusting entries in good form.
Answer Sheet:
Date Particulars Debit Credit
Dec. 31 Adjusting Entries
Guide questions and instructions on how to prepare and submit
the laboratory
Submit outputs thru the VSUEE Student Portal saved in PDF File with the following filename
SURNAME_OfferingNum_Output Number Example: POLIQUIT_MGMT101aD034_Output No_1

References and Additional Resources

De Jesus, P.A et.al (2018), Fundamentals of Accounting. De Jesus et. al

Vera Cruz-Manuel (2018), Basic Concepts and Procedures International Edition 2018.Vera Cruz-
Manuel