ADJUSTING

THE
ACCOUNTS
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BEHIND EVERY
GREAT BUSINESS IS A
GREAT ACCOUNTANT

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ACCOUNTING PERIOD
1. Calendar Year
Start : January; End : December
2. Fiscal Year
Start : NOT January ; End : NOT December
3. Interim Financial Reports
Reports that cover monthly activities, trimester,
quarterly, semi-annual.

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Accrual VS. Cash
ACCOUNTING
 ACCRUAL ACCOUNTING
Income is recognized when it is earned, regardless of
when the payment is received.
Expense is recorded when incurred, regardless of when
cash is paid.
Accounts Receivable is recognized
Accounts Payable is recognized
Unearned Revenue is recognized
Prepaid Expense is recognized
CASH ACCOUNTING
Income is recognized when cash is received.
 
Expense is recognized when cash is paid.
No Accounts Receivable
No Accounts Payable
Advance payments are treated as revenue
Advance payment to suppliers is treated as expense.

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THE REVENUE & THE MATCHING
PRINCIPLE
REVENUE PRINCIPLE
⊳ When and what amount of revenue is to be
recognized.
sales
professional fees earned
interests
dividends
royalties
rent and gains arising from disposal of non-current asset

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MATCHING PRINCIPLE
⊳  
⊳ Revenue recorded should match with expense
recorded for specific period.

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IMPORTANCE OF ADJUSTING

⊳ Adjusting entries bring the asset, liability and equity

to their correct account.

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ITEMS THAT NEED ADJUSTMENTS
ACCRUALS DEFERRALS BAD DEBTS DEPRECIATIO
a. Accrued Expenses a. Prepayments N
b. Accrued Interest b. Deferred .
on Notes Payable/ Revenue/
Receivables Unearned
c. Accrued Revenue Revenue

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ACCRUED EXPENSES
⊳ Accrued expenses are items already recorded as
expenses but not yet paid
salaries
utilities
Expense XX
A/P XX

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1. On December 31, 2013, salaries for the last 3 days of December
were accrued in the amount of P15,000.

Salaries Expense 15,000

Salaries Payable 15,000

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ACCRUED INTEREST ON NP

⊳ Interest incurred but not yet paid

Interest Expense XX
A/P XX

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1.
  ZTE Company owes a bank a 10%, 90-day note for P150,000
dated November 1, 2013.

Interest Expense 2,500

Interest Payable 2,500

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ACCRUED INTEREST ON NR

⊳ Interest earned but not yet recorded

Interest Receivable XX
Interest Income XX

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1. Accrued interest on a note issued by a patient on December 1,
2013 for 90 days was not recorded. The note is for P50,000,
10% interest

Interest Receivable 416.67

Interest Income 416.67

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ACCRUED REVENUE

⊳ Accrued revenues are revenues already earned but no

payment is received yet.
Accounts Receivable XX
Revenue XX

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1. Accrued hospital fee for outgoing patient for the last few days of
December amounting to P25,000 was not recognized.

Accounts Receivable 25,000

Hospital Fees Earned 25,000

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  A L NI R E
Accrued NE U O NE U
Expense
Accrued NE U O NE U
Interest
Accrued U NE U U NE
Revenue

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DEFERRALS
PREPAYMENTS/PREPAID EXPENSES
Prepaid expenses are expenditures paid for goods that are
not yet consumed.
insurance premium
rent
supplies

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METHODS OF RECORDING
PREPAYMENTS
⊳ ASSET METHOD – used portion ung nirereflect sa adjusting
INITIAL ENTRY
Supplies (Asset) XXX
Cash/AP XXX
ADJUSTING ENTRY
Supplies Expense (Expense) XXX
Supplies (Asset) XXX

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1. Mr. dela Cruz paid P24,000 on November 1, 2013 for one-year
premium taken on its building. The asset method was used to
record the payment.

INITIAL ENTRY
Insurance Premium 24,000
Cash 24,000

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 INSURANCE PREMIUM INSURANCE EXPENSE
24,000 4,000 4,000

20,000 4,000

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ADJUSTING ENTRY
Insurance Expense 4,000
Insurance Premium 4,000

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METHODS OF RECORDING
PREPAYMENTS
⊳ EXPENSE METHOD- unused portion ung nirereflect sa adjusting
INITIAL ENTRY
Supplies Expense (Expense) XXX
Cash XXX
  ADJUSTING ENTRY
Supplies (Asset) XXX
Supplies Expense (Expense) XXX

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 1. Makati Hotel purchased two fire insurance policies for newly
constructed building, details of which follows:
POLICY DATE OF COVERAGE PREMIUM
PURCHASED
1 April 1, 2013 24 months P60,000
2 Oct. 1, 2013 36 months P108,000

The bookkeeper debited Insurance Expense for the premium paid.

INITIAL ENTRY
4/01/13
Insurance Expense 60,000
Cash 60,000
10/01/13
Insurance Expense 108,000
Cash 108,000
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 INSURANCE INSURANCE PREMIUM
EXPENSE
60,000 37,500 37,500
108,000 99,000 99,000

31,500 136,500
 

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ADJUSTING ENTRY
Insurance Premium 136,500
Insurance Expense 136,500

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DEFFERED REVUENUE/UNEARNED
REVENUE

⊳ Advances from customers

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METHODS OF RECORDING DEFERRED
REVENUE
⊳ REVEUE METHOD- unearned portion ang nirererecognize sa
adjusting
INITIAL ENTRY
Cash XXX
Revenue XXX
ADJUSTING ENTRY
Revenue XXX
Unearned Revenue XXX

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1. Technological Services agreed to do 6-month package computer
services for a client at a total fee of P15,000. On November 1,
2013 the client paid ½ of the total price and the bookkeeper
recorded the amount received as Professional Fees Earned.

INITIAL ENTRY
Cash 7,500
Professional Fees Earned 7,500

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PROFESSIONAL FEES EARNED UNEARNED PROFESSIONAL FEES
7,500 2,500
2,500

5,000
 
ADJUSTING ENTRY
Professional Fees 5,000
Unearned Professional Fees 5,000

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METHODS OF RECORDING DEFERRED
REVENUE
⊳ LIABILITY METHOD- earned portion and nirerecognize sa adjusting
INITIAL ENTRY
Cash XXX
Unearned Revenue XXX
ADJUSTING ENTRY
Unearned Revenue XXX
Revenue XXX
⊳  
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1. Technological Services agreed to do 6-month package computer
services for a client at a total fee of P15,000. On November 1,
2013 the client paid ½ of the total price and the bookkeeper
recorded the amount received as Unearned Professional Fees.

INITIAL ENTRY
Cash 7,500
Unearned Professional Fees 7,500

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UNEARNED PROFESSIONAL FEES PROFESSIONAL FEES EARNED
7,500 5,000
5,000

2,500
 

ADJUSTING ENTRY
Unearned Professional Fees 5,000
Professional Fees Earned 5,000

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  A L NI R E
Asset O NE O NE U
Method
Expense U NE U NE O
Method
Revenue NE U O O NE
Method
Liability NE O U U NE
Method

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UNCOLLECTIBLE ACCOUNT
EXPENSE/DOUBTFUL ACCOUNTS/BAD
DEBTS
⊳ DIRECT METHOD
○ feeling mo di na magbabayad
○ BIR
ENTRY
Bad Debts Expense XXX
Accounts Receivable XXX

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UNCOLLECTIBLE ACCOUNT
EXPENSE/DOUBTFUL ACCOUNTS/BAD
DEBTS
⊳ ALLOWANCE METHOD
○ May doubt ka kung makakapagbayad kaya naglalaan ng allowance
ENTRY
Bad Debts Expense XXX
Allowance for Doubtful Accounts XXX

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METHODS OF ESTABLISHING
ALLOWANCE
⊳ Percentage of A/R
○ Required allowance and makukuha mo
⊳ Percentage of Sale
○ BDE ang makukuha mo
ENTRY
Bad Debts Expense XXX
Allowance for Doubtful Accounts XXX

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 ALLOWANCE
  ALLOWANCE, BEG XXX
  BDE XXX
WRITE OFF XXX  
RECOVERY XXX
  REQUIRED ALLOWANCE XXX

ALLOWANCE, BEG XXX

BDE XXX
WRITE OFF (XXX)
RECOVERY XXX
REQUIRED ALLOWANCE
XXX

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1. On January 1, 2013, the Accounts Receivable showed a balance
of P150,000 while allowance for Doubtful Accounts showed a
balance of P5,200. During the year, total debits to Accounts
Receivable amount to P 1,680,000 while total credits amount to
P1,720,000. The Company’s policy is to provide allowance for
doubtful accounts equivalent to 5% of A/R. Prepare adjusting
entry required on December 31, 2013.

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 ALLOWANCE FOR DOUBTFUL
ACCOUNTS RECEIVABLE ACCOUNTS
150,000 1,720,000 5,200
1,680,000 300

110,000 5,500
110,000
  𝑋 .05=5,500
ADJUSTING ENTRY
Doubtful Accounts Expense 300
Allowance for Doubtful Accounts Expense 300

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DEPRECIATION
⊳
⊳ Systematic
  means of allocating the costs of an asset, especially non-
current assets over its estimated useful life.
⊳ Depreciable Asset- assets that are subject to depreciation
⊳ Straight Line Method- per annum ung makukuha na amount

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DEPRECIATION
⊳
⊳ Cost
  of Asset- cost of purchase
○  
⊳ Scrap Value/ Salvage Value/ Residual Value
○ Amount remained after its useful life

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1. The company’s office equipmennt costing P100,000 is expected
to have 10 years economic life with no salvage value. This was
purchased by the company on August 1, 2013.

ADJUSTING ENTRY
Depreciation Expense 4, 1667.67
Accumulated Depreciation 4, 1667.67

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Spend time with the wise
and you will become wise
-PROVERBS 13:20-

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THANK YOU!

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