ADJUSTING JOURNAL ENTRIES

DEFINITION AND IMPORTANCE OF

ADJUSTING JOURNAL ENTRIES

ADJUSTING JOURNAL ENTRIES-ARE ENTRIES

USED TO UPDATE THE ACCOUNTS PRIOR TO THE
PREPARATION OF FINANCIAL STATEMENTS
BECAUSE THEY AFFECT MORE THAN ONE
ACCOUNTING PERIOD
 PREPAYMENTS
ARE EXPENSES ALREADY PAID BUT NOT YET
INCURRED OR USED
FOLLOWING ARE THE ACCOUNTS SUBJECTED TO
ADJUSTMENTS:
ASSET METHOD
JOURNAL ENTRY UPON PAYMENT
PREPAID EXPENSE XXX
CASH XXX
ADJUSTING JOURNAL ENTRY AT THE END OF THE
ACCOUNTING PERIOD
EXPENSE XXX
PREPAID EXPENSE XXX
EXAMPLE 1

ON APRIL 30,2016,X CO. PAID P36,000 WORTH

OF INSURANCE PREMIUM FOR TWO
YEARS.GIVE THE ADJUSTING JOURNAL ENTRY
ON JUNE 30,2016
ANSWER
JOURNAL ENTRY UPON PAYMENT ON APRIL 30,
2016
PREPAID INSURANCE 36,000
CASH 36,000
PAID TWO -YEAR INSURANCE

ADJUSTING JOURNAL ENTRY AT THE END OF THE

ACCOUNTING PERIOD JUNE 30, 2016
INSURANCE EXPENSE 3,000
PREPAID INSURANCE 3,000
TO RECORD THE EXPIRED INSURANCE
Computation P36,000 = P1,500 X 2= P3,000
EXAMPLE 2

SUPPLIES ACCOUNT SHOWED A BALANCE OF

P4,000.SUPPLIES USED DURING THE YEAR
AMOUNTED TO P2,300. GIVE THE ADJUSTING
ENTRY ON DEC. 31, 2016
ANSWER
ADJUSTING JOURNAL ENTRY ON DEC. 31,2016

SUPPLIES EXPENSE 2,300

SUPPLIES 2,300
TO RECORD SUPPLIES USED FOR THE YEAR

Computation. There is no computation necessary

because the P2,300 supplies used during the year was
already given in the problem.
Example 3
The trial balance of MONGOLIA
CAFÉ shows Kitchen Supplies and
Kitchen Supplies Expense accounts at
balances of P8,400. At year end, there
are P1,480 of supplies on hand.
 answer3
KITCHEN SUPPLIES EXPENSE 6,920
KITCHEN SUPPLIES 6,920

Computation: 8,400 – 1,480= 6,920

DEFERRALS OR UNEARNED INCOME
• IS INCOME ALREADY RECEIVED BUT NOT YET EARNED
• LIABILITY METHOD
• JOURNAL ENTRY UPON RECEIPT OF CASH
CASH XXX
UNEARNED INCOME XXX
RECEIVED CASH FOR SERVICES TO BE RENDERED

• ADJUSTING JOURNAL ENTRY AT THE END OF THE

ACCOUNTING PERIOD
UNEARNED INCOME XXX
INCOME XXX
TO RECORD EARNED PORTION OF THE LIABILITY
EXAMPLE 1

ON AUGUST 1, DR. YEE RECEIVED P90,000 FOR

DENTAL FEES TO BE RENDERED IN THE NEXT
6 MONTHS. GIVE THE ADJUSTING JOURNAL
ENTRY AT THE END OF SEPT.
 ANSWER
JOURNAL ENTRY UPON RECEIPT OF CASH ON AUGUST 1

CASH 90,000
UNEARNED DENTAL FEES 90,000
RECEIVED CASH FOR DENTALSERVICES TO BE
RENDERED

ADJUSTING JOURNAL ENTRY ON SEPTEMBER 30

UNEARNED DENTAL FEES 30,000

DENTAL FEES 30,000
TO RECORD DENTAL FEES EARNED
Computation. 90,000 /6=15,000 * 2=P30,000
EXAMPLE 2

ON DECEMBER 1,2016, PETIT CO. RECEIVED

P48,000 AMOUNT OF ADVANCED RENTALS FOR
6 MONTHS. GIVE THE ADJUSTING JOURNAL
ENTRY ON DEC. 31, 2016
ANSWER
JOURNAL ENTRY UPON RECEIPT OF CASH ON
DEC.1
CASH 48,000
UNEARNED RENT INCOME 48,000
RECEIVED 6 MONTHS RENT IN ADVANCE
o ADJUSTING JOURNAL ENTRY ON DEC. 31
UNEARNED RENT INCOME 8,000
RENT INCOME 8,000
TO RECORD RENT EARNED FOR THE
MONTH
Computation. 48,000/6=P8,000 *1=P8,000
Example 3
On March 1, 2015, FINLAND Tutorials
received P60,000 representing an advance
payment for services to be rendered in
November 2015. This was booked using a
real account. As of the year-end, only 70%
of the expected service was rendered.
 answer3
UNEARNED SERVICE REVENUE 42,000
SERVICE REVENUE 42,000

Computation:60,000 x .70=42,000
 ACCRUED EXPENSES

• ARE EXPENSES ALREADY INCURRED OR USED, BUT

NOT YET PAID
• ADJUSTING JOURNAL ENTRY AT THE END OF
ACCOUNTING PERIOD

EXPENSES XXX
EXPENSE PAYABLE /ACCRUED EXPENSE
XXX
TO RECORD UNPAID EXPENSE
EXAMPLE 1

THE COMPANY RECEIVED A MAYNILAD BILL

IN THE AMOUNT OF P9,800 ON DEC. 26, 2016.
THE COMPANY INTENDS TO PAY ON JAN. 8,
2017
ANSWER
ADJUSTING JOURNAL ENTRY ON DEC. 31, 2016

UTILITIES EXPENSE 9,800

UTILITIES PAYABLE 9,800
TO RECORD UNPAID UTILITIES FOR THE
MONTH
EXAMPLE 2

UNPAID SALARIES AT THE END OF DEC.31,2016

AMOUNTED TO P18,800
ADJUSTING JOURNAL ENTRY ON DEC. 31,2016
ANSWER
SALARIES EXPENSE 18,800
SALARIES PAYABLE
18,800
TO RECORD UNPAID SALARIES AT YEAR
END
Example 3
On March 1,2015,Xylophone Tutorials
borrowed money from Metrobank to be
used in business.Xylophone issued an
interest bearing note for the P285,000,net
of 2% processing fee, it received. The
bank loan is payable after three years
with an annual interest of 15%. Provide
the journal entries at year-end 2015.
 answer

INTEREST EXPENSE 36,352.04

INTEREST PAYABLE/ACCRUED INT. EXPENSE 36,352.04

Computation : 285,000= net of 2%

Finding the Principal Amount
=x-0.02x
=285,000/0.98
Principal = 290,816.32
Interest =Principal x Rate x Time
= 290,816.32 x 15% x 3yrs
Annual Interest =43,622.44
= 43,622.44/12
Monthly Int. = 3,635.20
=3,635.20 x 10
=36,352.04
 ACCRUED INCOME

INCOME ALREADY EARNED BUT NOT YET RECEIVED

INCOME RECEIVABLE/Accrued Income XXX

INCOME XXX
TO RECORD INCOME EARNED
EXAMPLE 1

A ONE – YEAR, 6% NOTE RECEIVABLE IN THE

AMOUNT OF P200,000 WAS RECEIVED ON JAN.
1, 2016. THE INTEREST AND THE PRINCIPAL
ARE PAYABLE ON MATURITY DATE. GIVE THE
ADJUSTING JOURNAL ENTRY ON JUNE 30, 2016
 ANSWER
ADJUSTING JOURNAL ENTRY ON JUNE 30,2016

INTEREST RECEIVABLE 6,000

INTEREST INCOME 6,000
TO RECORD INTEREST INCOME EARNED
Computation.
Interest= Principal x Rate x Time
= P200,000 x 6% x 6mos
= P200,000 X 0.06 X 6mos.
= P6,000
The interest for 6 months is P6,000
Example 2

Drum Stick Chickens rendered catering services last

December 15,2015. The contract price amounted to P75,000.
Since no payment has been received yet. Drum Stick did not
make any journal entry last December 15, 2015.
 answer

Accrued Service Income/ Income Receivable 75,000

Service Income 75,000
 BAD DEBTS/DOUBTFUL
ACCOUNTS/UNCOLLECTIBLE
ACCOUNTS
BAD DEBTS/DOUBTFUL ACCOUNTS ARE LOSSES DUE TO
UNCOLLECTIBLE ACCOUNTS
• ADJUSTING JOURNAL ENTRY AT THE END OF THE
ACCOUNTING PERIOD
BAD DEBTS EXPENSE XXX
ALLOWANCE for BAD DEBTS XXX
TO RECORD ESTIMATED UNCOLLECTIBLE ACCOUNTS
OR
DOUBTFUL ACCOUNTS EXPENSE XXX
ALLOWANCE for DOUBTFUL ACCOUNTS XXX
TO RECORD ESTIMATED UNCOLLECTIBLE ACCOUNTS
EXAMPLE 1

ACCOUNTS RECEIVABLE SHOWS A BALANCE OF

P100,000. IT IS ESTIMATED THAT 8% OF THIS IS
UNCOLLECTIBLE. GIVE THE ADJUSTING
JOURNAL ENTRY ON DEC. 31, 2016 FOR THE
PROVISION OF THE ESTIMATED
UNCOLLECTIBLE ACCOUNT
 ANSWER

BAD DEBTS EXPENSE 8,000

ALLOWANCE for BAD DEBTS 8,000
TO RECORD ESTIMATED UNCOLLECTIBLE
ACCOUNTS

Computation. P100,000 X 0.08= P8,000

Example 2

Accounts Receivable shows a balance of P100,000.It is

estimated that 8% of this is uncollectible. Allowance for Bad
Debts per general ledger has a balance of P1,000.Give the
adjusting journal entry on December 31,2016 for the provision
of the estimated uncollectible account.
 answer

Bad Debts Expense 7,000

Allowance for Bad Debts 7,000

Note: Allowance for Doubtful Accounts

1,000 Balance before
adjustment
7,000 Adjusting journal
entry
8,000 required balance(end)
DEPRECIATION EXPENSE

IS THE ALLOCATION OF PLANT ASSET

COST OVER ITS ESTIMATED USEFUL LIFE.
THIS IS THE EXPENSE ALLOTTED FOR THE
WEAR AND TEAR OF PROPERTY,PLANT,
AND EQUIPMENT DUE TO PASSAGE OF
TIME
DEPRECIATION EXPENSE
THE FF. ARE 3 FACTORS CONSIDERED IN
COMPUTING THE DEPRECIATION EXPENSE:
1. COST is the purchase price of the depreciable
asset
2. SALVAGE VALUE is the estimated value of the
asset at the end of its useful life
3. ESTIMATED USEFUL LIFE, as the name
connotes, is not an exact measurement but
merely an estimation of the number of years an
asset can be useful to the entity.
The formula for computing for annual
depreciation is as follows:
COST P xxx
LESS: Salvage Value xxx
Depreciable cost P xxx
Divided by: Estimated Useful Life xxx
Annual Depreciation P xxx

Entry:
Depreciation Expense xxx
Accumulated Depreciation xxx
EXAMPLE 1
A BUILDING WITH AN ESTIMATED USEFUL
LIFE OF 30 YEARS FINISHED CONSTRUCTION
ON JUNE 1,2016. THE COST OF THE BUILDING
IS 4.8 MILLION PESOS WITH AN ESTIMATED
SALVAGE VALUE OF P300,000.
GIVE THE ADJUSTING JOURNAL ENTRY ON DEC.
31, 2016 TO RECORD THE DEPRECIATION OF THE
BUILDING
 ANSWER 1
ADJUSTING JOURNAL ENTRY ON DEC. 31, 2016

DEPRECIATION EXPENSE 87,500

ACCUMULATED DEPRECIATION 87,500
TO RECORD DEPRECIATION EXPENSE FOR THE
BUILDING
Computation.
Cost P4,800.000
Less: Salvage Value 300,000
Depreciable cost P4,500,00
Divided by: Estimated Useful Life 30 years
Annual Depreciation P 150,000/12
Monthly Depreciation 12,500 x 7=87,500
Example 2

The company constructed its own building with

total cost amounting to P22,000,000. The building
has an estimated useful life of 25 years and a
salvage value of P1,000,000. The building was
completed last April 30 and depreciated started
after its completion.
Answer 2
DEPRECIATION EXPENSE 560,000
ACCUMULATED DEPRECIATION 560,000

TO RECORD DEPRECIATION EXPENSE FOR THE

BUILDING
Computation.
Cost P22,000,000
Less: Salvage Value 1,000,000
Depreciable cost P21,000,000
Divided by: Estimated Useful Life 25 years
Annual Depreciation P 840,000
Monthly Depreciation 840,000/12=P70,000
70,000 X 8mos.= ₱ 560,000
Example 3
AUSTRALIA Delivery needed four trucks in 2015.Two
trucks were purchased on May 1,2015 at ₱1,850,000
each and another two trucks were purchased on July
1, 2015 at a total price 15% higher than the May
1,2015 purchase. For this type of depreciable assets,
Australia is allocating 8% of the acquisition cost for
scrap value and estimating useful lives at 8 years.
 answer3
DEPRECIATION EXPENSE 528,329.17
ACCUMULATED DEPRECIATION 528,329.17
Computation.
Cost ₱ 3,700,000 ₱
4,255,000
Less: Salvage Value 296,000
(340,400)
Depreciable cost ₱ 3,404,000 3,914,600
Divided by: Estimated Useful Life 8 years 8 yrs
Annual Depreciation ₱ 425,500 489,325
Monthly Depreciation ₱ 35,458.33
40,777.08
May1 to Dec. ₱ 283,666.66 July1 to Dec. ₱
 answer3
DEPRECIATION EXPENSE 528,329.17
ACCUMULATED DEPRECIATION 528,329.17

Analysis & Computation:

May 1, 2015 July 1,2015
1,850,000 x 2=3,700,000 1,850,000 x 2 x 0.15
=3,700,000 x 0.08 =3,700,000 x 0.15
=296,000 =555,000
=3,700,000-296,000 =3,700,000 + 555,000
=3,404,000/8 =4,255,000 x 0.08
=425,500/12 =340,400
=35,458.33 x 8 = 4,255,000- 340,400
=283,666.66 =3,914,6000 / 8
=489,325/12
=40,777.08 x 6
=244,622.50

So, we will add 283,666.66 + 244,622.50=528,329.16

 APPLICATION 1

GIVE THE ADJUSTING JOURNAL ENTRIES ON DEC. 31

GIVEN THE FF.

RENT PAID LAST JULY, AMOUNTED TO P21,000, OF

WHICH P14,000 HAS ALREADY EXPIRED.THIS WAS
INITIALLY RECORDED AS PREPAID RENT UPON
PAYMENT.
 APPLICATION 2

GIVE THE ADJUSTING JOURNAL ENTRIES ON DEC. 31

GIVEN THE FF.

SUPPLIES PURCHASED DURING THE YEAR AMOUNTED

TO P2,900, OF WHICH P2,000 HAS BEEN USED DURING
THE YEAR.THE ASSET METHOD WAS USED UPON
PURCHASE OF THE SUPPLIES.
 APPLICATION3

GIVE THE ADJUSTING JOURNAL ENTRIES ON DEC. 31

GIVEN THE FF.

UNEARNED INTEREST HAS A BALANCE OF P4,800, OF

WHICH P1,900 HAS ALREADY BEEN EARNED DURING
THE YEAR. THE AMOUNT WAS INITIALLY CREDITED TO
UNEARNED INTEREST UPON COLLECTION
application4
GIVE THE ADJUSTING JOURNAL ENTRIES ON
DEC. 31

On March 1,2015, ANGEL Tutorials received ₱70,000

representing an advance payment for services to be
rendered in October 2015. This was booked using a
real account. As of the year-end, only 80% of the
expected service was rendered.
APPLICATION5

UNPAID SALARIES OF ITS CLEANERS AS OF

DECEMBER 31 IS P8,000.
APPLICATION6

On April 1,2015, Devine Tutorials borrowed money

from City Savings Bank to be used in business. Devine
issued an interest bearing note for the ₱385,000 net of
3% processing fee, it received. Provide the adjusting
entries at the year end .
Application 7

UNCOLLECTIBLE ACCOUNTS AT YEAR-END IS

ESTIMATED TO BE P7,890.
APPLICATION 8
ANSWER8
 EXERCISE 1
SNOOPY ENTERPRISES PROVIDES COLLECTION SERVICES TO
ITS CUSTOMERS. YEAR-END ADJUSTING JOURNAL ENTRIES ARE
PREPARED EVERY DEC. 31 AS ITS BOOKS ARE CLOSED. MAKE
THE APPROPRIATE ADJUSTING ENTRY FOR EACH OF THE FF
ITEMS:
1. UNCOLLECTIBLE ACCOUNTS AT YEAR-END IS ESTIMATED
TO BE P6,950.
2. RENT PAID LAST APRIL AMOUNTED TO P400,000,ONE FOURTH
OF WHICH HAS ALREADY EXPIRED.THIS WAS INITIALLY
RECORDED AS PREPAID RENT UPON PAYMENT.
3. DEPRECIATION EXPENSE FOR ITS TRANSPORTATION
EQUIPMENT,P6,780
4. SUPPLIES PURCHASED DURING THE YEAR AMOUNTED TO
P4,290,OF WHICH ONE- THIRD HAS BEEN USED DURING THE
YEAR.
5. UNPAID SALARIES OF ITS CLEANERS AS OF
DECEMBER 31 IS P7,460.

6. UNEARNED INTEREST HAS A BALANCE OF

P3,120, OF WHICH P2,560 HAS ALREADY BEEN
EARNED DURING THE YEAR. THE AMOUNT WAS
INITIALLY CREDITED TO UNEARNED INTEREST
UPON COLLECTION.
 EXERCISE 3
Bey Cleaners closes its books every December 31 and
correspondingly prepares year-end adjusting entries. Make the
appropriate adjusting entry for each of the ff. items:
1. Last September 15, Bey Cleaners decided to sign the
company for an eight –month advertising contract for a full
blast advertising of all its products. The company received
p780,000 for the contract and the accountant credited the
amount to Unearned Advertising.
2. Last August 30, the company subscribed to a business
magazine paying P3,240 for a three-year subscription to start
in September. This was recorded to Prepaid Subscription.
3. Supplies account at the beginning of the year showed a
balance of P10,800. No purchases were made during the
year. Supplies used during the year amounted to P7,100.
4. A Machine costing P950,000,WITH A SALVAGE
VALUE OF P50,000 and an estimated useful life of 15 years
is depreciated on a straight line basis
5. Utilities bill amounting to P3,486 was received on Dec.
27. The company intends to pay it on January 5 the ff. year.
6. Last May 1, the company decided to rent a garage as
parking space of its company vehicles. Nine months rent
was paid in advance in the amount of P81,000. The Asset
Method was used to record this transaction.
7. Last June 15, the company lent Angel Co. P90,000 at
10% per annum.
8. Last Nov. 1, the third floor of the company building was
leased to Poseidon Enterprises. Bey Cleaners received
P184,000 representing an 5-month lease contract. The
Liability Method was used to record the receipt of payment.
9. Doubtful accounts at the end of the year are estimated to be
4% of Accounts Receivable which has a balance of P275,000.
Allowance for Doubtful Accounts has a credit balance of
P9,700 per general ledger before adjustment.
10. The company constructed its own building with total cost
amounting to P22,000,000. The building has an estimated
useful life of 25 years and a salvage value of P1,000,000. The
building was completed last April 30 and depreciated started
after its completion.