Prepare the adjusting entries as of December 31, 2019.

1. The bills for telephone and electric consumption are still unpaid as of
December 31. Telephone bill is P3,000 while electric consumption bill is P5,500.

Utilities Expense 8,500

Utilities Payable or Accrued Utilities Payable 8,500
To take up unpaid utilities for the period

2. Office Furniture appearing in the general ledger at a cost of P125,000 was

acquired on March 1 of this year. It is estimated to have a salvage value of P5,000
after twenty years of use.
Depreciation Expense 5,000
Accumulated Depreciation – Office Furniture 5,000

AD =c-sv/n
(125,000 – 5,000)/20 years
Ad/12 = monthly depreciation
10 months x mo.dep

3. Insurance premium of P1,800 for six months is payable in advance. The

last payment for the insurance premium was Nov. 1 of the current year. Asset
method was used in recording the expense.

Insurance Expense 600

Prepaid Insurance 600
4. The general ledger for accounts receivable account shows a balance of
P25,000 while allowance for Bad Debts is P500. The allowance for bad debts shall
be increased to 10% of the accounts receivable balance.
Bad Debt Expense 2,000
Allowance for Bad Debts 2,000

5. A promissory note with a face value of P30,000 was

received from a customer on December 16 of the current year
for professional services rendered. The note bears interest at
9% and is expected to be collected after 60 days from that date.
Interest Receivable 112.50
Interest Income ( for 15 days) 112.50

I = prt
30,000 x .09 x 60/360 = 450 for 60 days

Dec. 31
16
15 days

6. Employees’ salary for one week, Mondays through Fridays

averages P36,000 and is payable every Friday. December 31 of
the current year falls on a Wednesday.

Salaries Expense 21,600

Salaries Payable or Accrued Salaries 21,600
P36,000/5 days = P7,200 per day x 3 days ( Monday, Tuesday, Wednesday which of December
31) = P21,600 = not yet paid

7. On November 1 of the current year, the company

discounted its own promissory note whose maturity value is
P25,000 at an interest rate of 9% maturing after 90 days. The
interest on the note was recorded using the expense method.

Original entry at the date of discounting:

Cash 24,437.50
Interest Expense 562.50
Notes Payable 25,0000

P562.50 this is an interest for 90 days. Therefore, P562.50 divided by 90 days = 6.25 per day
Nov. 1 to December 31 = 60 days x P6.25 per day = P375 will only be the amount of interest
expense as of December 31.

ADJUSTING ENTRY:
Prepaid Interest 187.50
Interest Expense 187.50

INTEREST EXPENSE
Date of discounting 562.50 AJE 12.31 187.50
 As of Dec. 31, balance 375.00

8. On November 16, of the current year, a promissory note

was issued to meet the necessary daily cash requirements of
the company. Its face value is P80,000 with an interest rate at
6%, maturing with 120 days.

Interest Expense 600

Interest Payable or Accrued Interest 600

I = prt = P80,000 x .06 x 120/360 = P1,600 for 120 days

Remaining days of Nov. (Nov, 30 -16 days) = 14 days + 31 days (Dec. 1-31) = 45 days
Therefore: 45 days is P600.

9. Rent for one year of P78,000 was received in advance from a tenant on September1 of
the current year. Income method was used in recording the receipt of income.
Rent Income 52,000
Unearned Rent 52,000

10. The accounts receivable per general ledger shows a balance of P25,000. It is expected
that only 90% of this amount is collectible.
Bad Debt Expense 2,500
Allowance for Bad Debts 2,500
PRO-FORMA OF ADJUSTING ENTRIES SUMMARY:
ADJUSTING ENTRIES = are journal entries prepared at the end of the
accounting period in order to UPDATE the balances of
accounts.
● Adjusting entries are needed under the accrual accounting in
order to reflect the income when earned and recognize
expenses when incurred.

1. ACCRUED EXPENSES = these are expenses already incurred but not yet
paid.

_________________Expense xx
Accrued ______________Payable xx

2. ACCRUED INCOME = these are income already been earned but not yet
collected or not yet received in cash.

Accrued ________________Receivable xx
_______________Income xx

3. PREPAID EXPENSES = these are expenses already paid but not yet been
actually incurred.

a. EXPENSE METHOD: upon payment

Original entry: Rent Expense 10,000
Cash 10,000
Expired =P6,000

Prepaid _________________ 4K xx
_____________Expense 4k xx

RENT EXPENSE
Oct. 1 10,000
Dec. 31 aje 4,000
DeC. 31 6,000
 b. ASSET METHOD
ORIGINAL ENTRY:
Prepaid Rent 10,000
Cash 10,000

__________Expense 6,000
Prepaid ___________ 6,000

PREPAID RENT
Oct. 1 10,000
Dec. 31 aje 6,000
Dec. 31 4,000

4. UNEARNED INCOME = these are income already received in cash but not
yet fully earned.
ORIGINAL ENTRY:
CASH 6,000
Service Income 6,000
Earned portion is P4,000

a. INCOME METHOD
____________Income xx2,000
Unearned ___________Income xx2,000

SERVICE INCOME
AJE 2,000 6,000 UPON RECEIPT from customer

4,000

Original entry:
Cash 6,000
 Unearned Service Income 6,000
Earned is P4,000

b. LIABILITY METHOD
Unearned _____________Income xx4,000
______________Income xx4,000

5. BAD DEBTS = these are losses due to non-collectibility of accounts

receivable caused by death, insolvency or similar events.

Bad Debts Expense xx

Allowance for Bad Debts xx
6. DEPRECIATION = portion of property and equipment cost charged to
expense during an accounting period.

Depreciation Expense xx
Accumulated Depreciation xx

Straight line method:

Annual Depreciation = cost minus salvage(scrap) value/est. useful life

7. MERCHANDISE INVENTORY = goods that remain unsold at the end of the

accounting period.

Merchandise Inventory, end xx

Income and Expense Summary xx

CLOSING ENTRIES:
● These are entries prepared at the end of accounting period in order
to bring the Income and expense accounts referred to as the nominal
accounts, to ZERO BALANCES.
 ● The objective of these entries is to segregate the income and
expenses of one accounting period with another period.

PRO-FORMA CLOSING ENTRIES:

1. TO CLOSE NOMINAL ACCOUNTS WITH DEBIT BALANCES

Income and Expense Summary xx140

Expenses (give the details) xx

2. TO CLOSE NOMINAL ACCOUNTS WITH CREDIT BALANCES

Income (give the details) xx
Income and Expense Summary xx100

3. a. If the result of operations were profitable:

Income and Expense Summary 60xx

A, Drawing xx60

b. If the result of operations were non-profitable

A, Drawing xx
Income and Expense Summary xx

REVERSING ENTRIES: optional

● These are entries prepared at the beginning of the next accounting period
in order to reverse some adjusting entries.
● The purpose of these entries is to achieve consistency and convenience in
the application of accounting principles and procedures.

The following are the adjusting entries that require REVERSING ENTRIES:

1. Accrued Expenses
2. Accrued Income
3. Prepaid Expenses if expense method was used
4. Unearned income if income method was used.