Analyze Journalize

Post entries to the

source transactions in the
accounts in the Prepare
documents. general journal.
general ledger. PRELIMINARY TRIAL
Balance.

Journalize THE 10 STEPS IN THE Journalize

ADJUSTING
REVERSING
ENTRIES in the ACCOUNTING CYCLE ENTRIES in the
general journal. general journal.

Prepare financial
Journalize
statements.
CLOSING ENTRIES
in the general Prepare worksheet
journal. or FINAL TRIAL
Prepare POST BALANCE
CLOSING TRIAL
Balance.
Adjusting entries can be classified into 6 main categories:

Accrued revenues: These entries record revenues that have been

earned but not yet billed or received. The adjusting entry typically
involves debiting an asset account (e.g., accounts receivable) and
crediting a revenue account.

Pro-forma Adjusting Entry:

Dr Receivable Account
Cr Revenue Account
Adjusting entries can be classified into 6 main categories:

Accrued expenses: These entries record expenses that have been

incurred but not yet paid or recorded. The adjusting entry usually
involves debiting an expense account and crediting a liability
account (e.g., accrued expenses or accounts payable).

Pro-forma Adjusting Entry:

Dr Expense Account
Cr Liability Account
A djus ting e ntr ie s can b e clas s if ie d into 6 m ain
categories:

Precollection/Deferred revenues: These entries involve revenues

that have been received in advance but not yet earned.

Methods in recording Pre-collection/Deferred Revenue

1. Liability Method
2. Income Method
A djus ting e ntr ie s can b e clas s if ie d into 6 m ain
categories:

Deferred/Prepaid expenses: These entries involve expenses

that have been paid in advance but not yet incurred.

Methods in recording Pre-collection/Deferred Revenue

1. Expense Method
2. Asset Method
Adjusting entries can be classified into 6 main categories:

Depreciation: These entries allocate the cost of a long-term asset

over its useful life. The adjusting entry usually involves debiting an
expense account (e.g., depreciation expense or amortization
expense) and crediting a contra asset account (e.g., accumulated
depreciation or accumulated amortization)

Depreciation Expense = (Cost – Salvage Value)/Life

Depreciation Expense = Depreciable Cost /Life

Pro-forma Adjusting Entry:

Dr Depreciation Expense
Cr Accumulated Depreciation-Fixed Asset
Adjusting entries can be classified into 6 main categories:

Doubtful accounts: An allowance for doubtful accounts is a contra

account that nets against the total receivables presented on the
balance sheet to reflect only the amounts expected to be paid. The
allowance for doubtful accounts estimates the percentage of
accounts receivable that are expected to be uncollectible.

Pro-forma Adjusting Entry:

Dr Bad Debts
Cr Allowance for Bad Debts
STEPS 5 to 6
 HILLTOP VULCANIZING
Preliminary Trial Balance
December 31, 2023

Cash P 14,600
Accounts receivable 9,500
Prepaid insurance 5,400
Shop Equipments 30,000
Vulcanizing Equipments 65,000
Accounts payable P 11,000
Unearned Service Income 5,500
Cruz, Capital 66,000
Cruz, Drawings 9,000
Service Income 156,500
Wages expense 75,000
Advertising expense 7,500
Rent expense 15,000
Telephone expense 4,500
Utilities Expense 3,500
P 239,000 P 239,000
Additional Information:

1. The lives and salvage values of the fixed assets follow:

Life Salvage Value
Shop Equipments 60 months -
Vulcanizing Equipments 10 years 5,000

2. P500 of the accounts receivable is doubtful as to collection.

3. Prepaid insurance is for 2023, 2024 and 2025.
4. Advertising expense is for 3 years starting 2023.
5. At year end, three (3) shop assistants rendered overtime to fast track the
repair of the car of a “suki” client. Each assistant is entitled to P500
overtime pay, which was paid in 2024.
6. Services corresponding to P500 of the unearned service income have been
rendered at year end.
7. The Service Income includes advances from a client, P6,500, whose car will
be serviced in 2024.
8. The Rent expense is for 2023 only.
The lives and salvage values of the fixed assets follow:
Life Salvage Value
Shop Equipments 60 months -
Vulcanizing Equipments 10 years 5,000

Dec 31 Depreciation Expense 6,000

Accumulated 6,000
Depreciation – Shop
Equipments

Dec 31 Depreciation Expense 6,000

Accumulated 6,000
Depreciation –
Vulcanizing
Equipments
P500 of the accounts receivable is doubtful as to collection.

Dec 31 Doubtful Accounts 500

Allowance for doubtful 500
accounts

Prepaid insurance is for 2023, 2024 and 2025.

Dec 31 Insurance Expense 1,800

Prepaid Insurance 1,800

Advertising expense is for 3 years starting 2023..

Dec 31 Prepaid Advertising 5,000

Advertising Expense 5,000
At year end, three (3) shop assistants rendered overtime to fast track the repair of
the car of a “suki” client. Each assistant is entitled to P500 overtime pay, which was
paid in 2024.

Dec 31 Wages Expense 1,500

Accrued Wages 1,500
Payable

Services corresponding to P500 of the unearned service income have been rendered
at year end.

Dec 31 Unearned Service Income 500

Service Income 500

Dec 31 Service Income 6,500

Unearned Service 6,500
Income
The Service Income includes advances from a client, P6,500, whose car will be
serviced in 2024.

Dec 31 Service Income 6,500

Unearned Service 6,500
Income

The Rent expense is for 2023 only

NO ADJUSTING ENTRY
 Analyze Journalize
Post entries to the
source transactions in the
accounts in the Prepare
documents. general journal.
general ledger. PRELIMINARY TRIAL
Balance.

Journalize THE 10 STEPS IN THE Journalize

ADJUSTING
REVERSING
ENTRIES in the ACCOUNTING CYCLE ENTRIES in the
general journal. general journal.

Prepare financial
Journalize
statements.
CLOSING ENTRIES
in the general Prepare worksheet
journal. or FINAL TRIAL
Prepare POST BALANCE
CLOSING TRIAL
Balance.
 FINAL
TRIAL BALANCE
I t is co mple te d af te r the adjus ting e ntr ie s ar e
completed. It has the finalized balances in all accounts
and is used to prepare the Financial Statements.
 HILLTOP VULCANIZING
Final Trial Balance
December 31, 2023
Cash P 14,600
Accounts receivable 9,500
Allowance for doubtful accounts P 500
Prepaid insurance 3,600
Prepaid Advertising 5,000
Shop Equipments 30,000
Accumulated Depreciation-Shop Equipments 6,000
Vulcanizing Equipments 65,000
Accumulated Depreciation-Vulcanizing Equipments 6,000
Accounts payable 11,000
Unearned Service Income 11,500
Accrued Wages Payable 1,500
Cruz, Capital 66,000
Cruz, Drawings 9,000
Service Income 150,500
Wages expense 76,500
Advertising expense 2,500
Rent expense 15,000
Telephone expense 4,500
Utilities Expense 3,500
Depreciation Expense 12,000
Doubtful Accounts 500
Insurance Expense 1,800
P 253,000 P 253,000