ADJUSTING

ENTRIES
Anne Angelie C. Gomez
San Isidro College
School of Accountancy
• Understand the purpose of adjusting entries
• Differentiate the types of adjusting entries
• Prepare adjusting entries and correcting entries

Objectives
 Review of the Accounting Cycle

Preparation of
Analysing Adjusting
Journalizing Posting Unadjusted Trial
Transactions Entries
Balance

Financial Preparation of
Post Closing
Reversal Entries Closing Entries Statements Adjusted Trial
Trial Balance
Preparation Balance
 Adjusting Entries
(GAM, Chapter 19, Sec. 50)

(GAM, Chapter 19, Sec. 50)

• Adjusting journal entries are made at the end of an

accounting period to allocate revenue and expenses
to the period which they actually occurred.
 Adjusting Entries
(GAM, Chapter 19, Sec. 50)
• Adjusting journal entries recorded or made at the
end of the accounting period

• Allocate revenue and expenses to the period which

they actually occurred.
 Adjusting Entries
• Are made to update the accounts and bring them
to their correct balances.
Types of Adjustments
(GAM, Chapter 19, Sec. 50 -51)

• Accruals
• Deferrals
• Other Adjustments
 • Adjusting entry for an economic activity
S
ACCRUAL
already undertaken but not yet recognized.

• (GAM, Chapter 19, Sec. 52)

 • Recognition of revenue or income earned
S
ACCRUAL
regardless of when it is collected, and
• To record expenses incurred regardless of
when paid.
ACCRUAL
Agency ABC received a bill from
BUSECO in the amount of P 12 000 for the
month of February.

Debit Credit
Electricity Expense P 12 000
Adjusting Entry Accounts Payable P 12 000
To recognize unpaid electric bill for Feb. 2018.
ACCRUAL
Agency DEF received a statement of
account for rentals for the month of
February amounting to P 30 000

Debit Credit
Rent/ Lease Expenses P 30 000
Adjusting Entry Accounts Payable P 30 000
To recognize unpaid rentals for February 2018.
 • Adjusting entries transferring data
LS
DEFERRA
previously recognized in an asset account
to an expense account, or data previously
recognized in a liability account to a
revenue account.
• (GAM, Chapter 19, Sec. 53)
 • Adjustment to expenses already paid but
LS
DEFERRA
not incurred and income already collected
but not yet earned.
DEFERRALS-Asset/Expense
In January 1, 2018, Agency GHI paid rent for the building used
amounting to P 120 000 for the year 2018. Adjustments are
made monthly.

Debit Credit
Prepaid Rent P 120 000
Original Entry Cash-MDS, Regular P 120 000
To recognize payment of rent for the year 2018.
DEFERRALS-Asset/Expense
In January 1, 2018, Agency GHI paid rent for the building used
amounting to P 120 000 for the year 2018. Adjustments are
made monthly.

Debit Credit
Rent/ Lease Expense P 10 000
Adjusting Entry Prepaid Rent P 10 000
To recognize the used portion of prepaid rent.

P 10 000= (P120 000 x 1/12).

DEFERRALS-Asset/Expense
In January 1, 2018, Agency GHI paid rent for the building used
amounting to P 120 000 for the year 2018. Adjustments are
made monthly.

Debit Credit
Prepaid Rent P 120 000
Original Entry Cash-MDS, Regular P 120 000
To recognize payment of rent for the year 2018.

Rent/ Lease Expense P 10 000

Adjusting Entry Prepaid Rent P 10 000
To recognize the used portion of prepaid rent.
DEFERRALS-
Asset/Expense
Agency JKL purchased P 28 000 worth of office supplies on account
in February 3, 2018. At the end of February, only P 12 000 worth of
supplies are on hand.
Debit Credit
Office Supplies and P 28 000
Materials Inventory
Original Entry
Accounts Payable P 28 000
To recognize purchase of office supplies.
Office Supplies Expense P 16 000
Office Supplies and P 16 000
Adjusting Entry Materials Inventory
To recognize the used office supplies.
DEFERRALS-Liability/ Income
In February 14, 2018, Agency MNO received P 30 000 for unearned
services. By the end of February, it was estimated that Agency MNO
had rendered services worth P 15 000.
Debit Credit
Cash-MDS, Regular P 30 000
Original Entry Other Unearned Revenue P 30 000
To recognize collection for services not yet rendered.

Other Unearned Revenue P 15 000

Adjusting Entry Other Service Income P 15 000
To recognize the earned portion of the unearned revenue.
Adjustments Unused NCA (National)
Other
•
• Petty Cash Fund
• Allowance for Accumulated Impairment
• Write-down of Inventories
• Correction/ Reclassification
• Depreciation
• Etc.
• (GAM, Chapter 19, Sec. 51)
Reversion of Unused NCA
Agency PQR received an NCA of P 200 000 of
which P 170 000 was used for 2018.

Debit Credit
Subsidy from National P 30 000
Government
Adjusting Entry
Cash-MDS, Regular P 30 000
To recognize reversion of unused NCA.
Depreciation
• Systematic Allocation of the depreciable
amount of an asset over its useful life.
• The straight line method of depreciation is
adopted unless another method is more
appropriate for agency operation.
• The guideline for the estimation of the useful life
of an asset is found in GAM for NGA, Chapter
10, Section 27.
• Residual Value is equivalent to at least 5% of
the cost of PPE.
• Depreciation is made on a monthly basis.
Depreciation
Agency STU acquires a motor vehicle on January
26, 2018 for P 1 500 000. The estimated useful life
is 5 years.

Cost 1 500 000

Residual Value (5%) (75 000)
Depreciable Amount 1 425 000
÷Useful life 5 years
Annual Depreciation 285 000
÷ No. of months 12 mos
Monthly Depreciation 23 750
 Depreciation
Agency STU acquires a motor vehicle on January
26, 2018 for P 1 500 000. The estimated useful life
is 5 years.

Debit Credit
Depreciation- Motor Vehicle P 23 750
Accumulated Depreciation- P 23 750
Adjusting Motor Vehicle
Entry
To recognize depreciation of motor vehicle for February
2018.
Depreciation
Agency VWX acquired Tables and Chairs in
amounting to P 50 000 with 4 years useful life.

Cost 50 000
Residual Value (5%) (2 500)
Depreciable Amount 47 500
÷ Useful life 4 years
Annual Depreciation 11 875
÷ No. of months 12 mos
Monthly Depreciation 989.58
 Depreciation
Agency VWX acquired Tables and Chairs in
amounting to P 50 000 with 4 years useful life.

Debit Credit
Depreciation- Furniture and Fixtures P 989.58
Accumulated Depreciation- P 989.58
Adjusting Furniture and Fixtures
Entry
To recognize depreciation of tables and chairs for February
2018.
Correcting Errors
• To locate and correct entries that were previously
made.
• To make adjustment for errors.
Correcting Errors- Omission
• Error committed when the transaction had not
been recorded.
• To correct, simply journalize the transaction.

• Example:
• Agency AAA purchased textbooks and
instructional materials for P 50 000 on February
3, 2018. It was not recorded in the books.
Correcting Errors- Omission
• Agency AAA purchased on account textbooks
and instructional materials for P 50 000 on
February 3, 2018. It was not recorded in the
books.
Debit Credit
Textbooks and Instructional P 50 000
Materials Inventory
Adjusting
Accounts Payable P 50 000
Entry
To recognize purchase of textbooks and instructional
materials.
Correcting Errors- Double
Entry
• Error committed when the transaction had been
recorded twice.
• To correct, simply reverse the original entry
made.

• Example:
• Agency ABC purchased textbooks and
instructional materials for P 50 000 on February
3, 2018. This transactions was recorded twice.
Correcting Errors- Double
Entry
• Agency ABC purchased textbooks and
instructional materials for P 50 000 on February
3, 2018. This transactions was recorded twice.

Debit Credit
Accounts Payable P 50 000
Adjusting Textbooks and Instructional P 50 000
Entry Materials Inventory
Correcting Errors- Transposition
• Error committed when the amount written/
recorded was reordered.
• To correct, journalize the entry to increase/
decrease the amount recorded.

• Example:
• Agency DEF purchased textbooks and
instructional materials for P 45 000 on February
3, 2018. This transactions was recorded as P 54
000.
Correcting Errors- Transposition
• Agency DEF purchased textbooks and
instructional materials for P 45 000 on February
3, 2018. This transactions was recorded as P 54
000.
Debit Credit
Accounts Payable P 9 000
Adjusting Textbooks and Instructional P 9 000
Entry Materials Inventory
Correcting Errors- Sliding
• Error committed when upon recording, a figure
slipped.
• To correct, journalize the entry to increase/
decrease the amount made.

• Example:
• Agency GHI purchased textbooks and
instructional materials for P 50 000 on February
3, 2018. This transactions was recorded as P 5
000.
Correcting Errors- Transposition
• Agency GHI purchased textbooks and
instructional materials for P 50 000 on February
3, 2018. This transactions was recorded as P 5
000.
Debit Credit
Textbooks and Instructional Materials P 45 000
Adjusting Inventory
Entry Accounts Payable P 45 000
 Activity
The following are transactions that requires adjustments for Agency
XYZ for February 2018:

a. Supplies and Materials before adjustments is P 60 000. On hand as

of February 28 is P 20 000.
b. An office equipment was acquired at P 340 000 and useful life is 5
years.
c. Rent for 2018 was paid last January 1, 2018 in the amount of P 60
000.
d. Receipt of electricity bill was recorded twice. Electric bills for
February is P 7 500.
e. Purchase of other supplies and materials were recorded at P 23 000
instead of P 32 000.
 Activity
a. Supplies and Materials Expense P 40 000
Supplies and Materials Inventory P 40 000
To recognize used supplies and materials for February 2018.
b. Depreciation- Office Equipment P 5 383.33
Accumulated Depreciation P 5 383.33
To recognize depreciation for office equipment for February 2018.
c. Rent Expense P 5 000
Prepaid Rent P 5 000
To record expired portion of prepaid rent for February 2018.
d. Accounts Payable P 7 500
Electricity Expenses P 7 500
e. Other Supplies and Materials Inventory P 9 000
Accounts Payable P 9 000
To recognize purchase of other supplies and materials.