I.

OBJECTIVES

A. Content Standard:
The learners have an understanding of …
 The accounting cycle of a service business
B. Performance Standard:
The learners shall be able to …
 Identify business and nonbusiness transactions, enumerate
the types of business documents, recite the rules of debit
and credit, and apply these in simple cases.

C. Most Essential Learning Competencies (MELCs)

The learners shall be to …
 Prepares adjusting entries (ABM_FAMB11-IVa-d-33)

D. Specific Objectives:

1. Identify what type of adjusting entry will be made

2. Understand why is there a need to adjust entries

ACTIVITY SHEET 3. Understand straight line depreciation

4. Know the different type of adjusting entries

10
(Quarter 4, Week 1) LESSON 10: ADJUSTING ENTRIES
NAME:
LAST NAME FIRST NAME M.I.

STRAND/GRADE/SECTION:

DATE OF SUBMISSION:
II. CONTENT
MM / DD / YY

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III. PROCEDURES: 7. What type of entry will increase the normal balance of the general
ledger account Service Revenues?
Before you start studying this learning activity sheet, take this A. Debit C. Credit
simple test to find out what you already know about the topic. B. Both a and c D. Neither a or c
8. What type of accounts are Interest Receivable and Fees Receivable?
A. Asset C. Liability
A. Preliminary Activities B. Expense D. Revenue
Directions: Read and carefully choose the answer on each 9. What type of accounts are Deferred Revenues and Unearned Reve-
question. Write the letter of your answer on your answer nues?
sheet. A. Asset C. Liability
B. Expense D. Revenue
1. When entries are adjusted it affects?
A. Income statement C. Both a and b 10.What type of entry will decrease the normal balances of the general
ledger accounts Interest Receivable and Fees Receivable?
B. Balance sheet D. Neither a or b
A. Debit C. Credit
2. Which of the following is an example of unearned income?
B. Both a and c D. Neither a or c
A. cash paid to supplier
B. advanced payment received from the customer III. DISCUSSION
C. advanced received from the bank
Preparing adjusting entries
D. cash discount received
3. a decrease in value of a fixed asset is called as? At the end of the accounting period, some accounts in the general ledg-
A. Depreciation C. Expiration er would require updating. Adjusting Entries are journal entries that bring
B. Appreciation D. Accumulation accounts up to date. The purpose of adjusting entries is for the revenue and
expenses to be reported at the correct period. This ensures that both revenue
4. Short term loans are loans to be paid for?
recognition and matching principle is followed.
A. Less than 2 years C. Less than 3 years
B. Less than 4 years D. Less than 1 year Back from the activity sheet 7, Revenue recognition is an accounting
standard that requires the revenue is recognized when it is earned. Matching
5. In which account does unearned revenue fall? principle is the principle that directs a business to report an expense on its
A. Asset C. Liabilities income statement within the same period that it is used or made upon.
B. Capital D. None of the above Adjusting entries make it possible to report correct amounts on the
6. already incurred before the outflow of cash was statement of financial position and on the income statement. All adjusting en-
made. tries affect at least one income statement account and one statement of finan-
cial position account. An adjusting entry will always involve an income or an
A. Accrued expense C. Accrued income expense account and an asset or a liability account. There are five basic
B. Deferred expense D. Deferred income sources of adjusting entries:

Note : For the sake of discussion narration made each entry was neglected. Each
entry should have narration.

3 4
 2. Deferred expenses or prepaid expenses
1. Depreciation expense
These items are initially recorded as assets, but are expected to become
Depreciation is a method of allocating the cost of an asset to an expense
expenses over time or through the period of operation of the business. Pre-
over the period of time that make up the asset’s useful life. Examples of
paid expenses from the name itself are expenses that are paid even before
assets subject to depreciate are building, equipment, furniture and fix-
they are incurred. It is usually periodic expenses which are paid at the be-
tures, these items lose their ability to provide useful service after time
ginning of a certain period that is both convenient for the payor and the
passes. Depreciation is also referred as the decrease in the usefulness of
payee, instead of collecting payment every month the payor pays for the whole
those assets. There is various type of depreciation but this will focus on
amount at the start of the period. It is already known how the entry of a
straight line method, the formula is written below.
prepaid expense will be but when the expense has already expired, the
ANNUAL DEPRECIATION = ASSET COST – RESIDUAL/SALVAGE VALUE following is format of the entry:
LIFE IN YEARS
Debit – Expense ###
Residual/Salvage Value is the values expected in the asset after its useful
Credit – Prepaid Expense ###
years.
Example:
The adjusting entry will affect the accounting equation. Assets will decrease
A heavy-duty printing machine was bought for Php 500,000 on January
1, 2019. The salvage value of these machine is Php 50,000. The life in because of the credit to Prepaid Expense will decrease the value of the Pre-
years of the machine is at 10 years life expectancy. How much is the depre- paid Expense. Equity will also decrease since there is an expense recorded.
ciation per year? Example:
Annual Depreciation = 500,000-50,000 Jaws Co. signs a one-year lease on a building for Php 10,000 per month.
10 The landlord requires the company pays the annual amount of Php
Annual Depreciation = Php 90,000 120,000 upfront at the beginning of the year.
Even though in reality there is no outflow of resources depreciation is The initial entry for Jaws Co. will be:
considered as an expense, in the same period revenue is earned. The entry
to record a depreciation is as follows: January 1, 20XX
Prepaid Rent 120,
Debit – Depreciation Expense ### 000
Cash 120,000
Credit – Accumulated Depreciation ###
At the end of one month, Jaws Co would have used up one month of its
Note: Depreciation Expense is an income statement account while Accumulat- lease agreement. Therefore, prepaid rent must be adjusted:
ed Depreciation is a balance sheet account. The accumulated depreciation is a
deduction from the account where the depreciation takes place. January 31, 20XX
Using the example above if the annual depreciation is Php 90,000 after one Rent Expense 10, 000
month an expense will be recorded (90,000/12=7500 per month):
Prepaid Rent 10,000
Depreciation Expense 7,500
Accumulated Depreciation 7,500

5 6
3. Deferred income or unearned income
These items are initially recorded as liabilities but expected to become This adjusting entry will affect the accounting equation. Liabilities will de-
income/revenue over time or through the operations of the business. Un- crease because of the debit to Unearned Revenue. Equity will increase be-
earned income is where cash is already received but the services is not yet cause a revenue is recorded.
availed or given to the customer. This situation is used in companies where 4. Accrued expenses or accrued liabilities
collection of cash is quite hard. The format of the entry is as follows:
Accrued Expense already incurred before the outflow of cash was made. An
Debit – Cash ### example of the accrued expense is utilities like electricity and water. The bill for
water and electricity comes at a certain period of time after it is used. An
Credit – Unearned Revenue ### expense should be recorded even though there is no actual out- flow of cash. To
record this transaction the entry will be like this:
When services are already rendered, revenue is earned. And when revenue is
earned the format of the entry is as follows: Debit – ###
Expense
Debit – Unearned Revenue ### Credit – Accrued Expenses ###
Payable
Credit – Revenue ###

The adjusting entry affect the accounting equation. Liabilities will in- crease
Example:
because of the credit to Accrued Expense Payable. Equity will decrease because
On January 9, 2019, Jaws Co. made Php30,000 advanced collection from its an expense is recorded.
customer. The service will be completed the following month, but at the end of Example:
the month 30% of the service has already been rendered. Make the adjustment
For the month of December 2019, Moon Repair Shop used a total of Php
entry for the end of January 2019.
25,000 worth of electricity and water. The company received the bills on Janu-
The initial entry should be like this:
ary 13, 2020. When should the expense should be recorded?

January 9, 2019 For the initial entry, since the company already used these services for the
Cash30,000 month of December, the expense will be recorded for the month of December.
Unearned Revenue 30,000

After the month of January, it is said that 30% of the service has been ren- December 31, 2019
dered. Therefore, 30% of 30,000 is 9000 is earned the adjusting entry will be: Utilities Expense 25,000
Utilities Payable 25,000

January 31, 2019 If the entry will be adjusted when paid the entry will be like this:
Unearned Revenue 9,00
January 13, 2020
Service Revenue 0 9,00
Utilities Payable 25,000
0
Cash 25,000

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5. Accrued income or accrued assets
These are income items that are earned but not yet pad by the customer, these
are receivables. The opposite of the unearned revenue, service is al- ready
rendered but the payment was not yet made. This case is used for situations INDEPENDENT ACTIVITY :
where in it is necessary to render the services before payment. The entry should
Directions: Provide answer for each statement. No erasures and write
be like this:
legibly. (5 points each)

Debit – Receivable ### On January 1, 2019, Florante and Laura Publishing House pur- chasing three
heavy duty printing machines to be used for the business. Each machine cost
Credit – Revenue ###
Php 50,000 they paid in cash. After a year ended the value of the machine
depreciates. The salvage value of the machine is said to Php 10,000 and has a
life expec- tancy of 5 years. Prepare the initial entry, and compute for the
This adjusting entry will affect the accounting equation. Assets will increase annual depreciation and prepare its entry.
because of the debit to Receivable. Equity will increase because a rev- enue is
recorded.
Example:

On December 31, 2019, Moon Repair Shop rendered Php 8,000 worth of ser-
vice to a client. However, the client promised to pay the amount on January 8,
2020.
For this example, the service is already rendered but no payment was made. The
service income should be recorded for the month of December but an ac- counts
receivable will be also recorded. The entry should be as follows:

December 31, 2019

Accounts Receivable 8,000
Service Income 8,000

On January 8, 2020, when the payment was received the entry should be as
follows: On December 1, 2019, the EXO Rental Co. collected from Shinee Corp. a total
of Php 90,000 as rental fee on one of their buildings for three months starting
on December 1. Prepare the initial en- try for EXO rental Co. and the adjusting
January 8, 2020 entry for the month ended December 31, 2019.
Cash 8,000
Accounts Receivable 8,000

9 10
 12/20/2019 Delivered orders for the Valentines card amounting to
Php 12,000, Mr. Lauv and Blue and Grey Co. decided
on an agreement that he will pay the amount on Jan-
uary 5, 2020.

12/22/2019 Received rush order of New Year’s photocards for Ms.

Fire, she already paid a total of Php 5,000 and will
collect her photocards on December 28, 2019.
12/24/2019 Paid New Year’s bonus to employees amounting to
Php 50,000.

12/28/2019 Ms. Fire collected all of her photocards.

INDEPENDENT ASSESSMENT: 12/31/2019 Paid Tinta Co. 50% of Php 30,000 for supplies.
Directions: Prepare all entries for the Blue and Grey Printing for
the month of December 2019.
1/3/2020 Paid Php 20,000 for their printing machine.
12/1/2019 The company purchased supplies on Tinta Co.
amounting for Php 30,000, on account. The company
promised to pay 50% of the amount at the end of the
1/4/2020 All remaining tarpaulins were collected by Mr. Penta-
month.
gon
12/3/2019 Collected Php 50,000 on advanced from Mr. Pentagon
for the printing of tarpaulins. 1/5/2020 Received payment by Mr, Lauv amounting to Php
12,000.
12/7/2019 Received the Electricity Bill for the month of Novem-
ber and paid a total of Php 15,293.61 in cash. 1/6/2020 Received new orders for photocards by Ms. Fire for a
total of Php 8,000. She paid the 30% as down pay-
12/15/2019 The tarpaulins were collected by Mr. Pentagon but ment and will complete the payment upon receiving
only 30% were printed. The remaining 70% will be orders on January 18, 2020
collected next month.
12/17/2019 Purchased additional printing machine for Php
40,000 on account.

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 REFLECTION
RUBRICS
Answer the following questions:
SAMPLE RUBRIC
What is the purpose of adjusting entries?

CRITERIA 5 3 2 1

Requirement All require- Almost all re- At least 50% Less than 50%
ment content quirement requirement requirement
was presented content was content was content was How does a failure to record accrued revenue distort the financial re-
presented presented presented ports?
Highly effec- Functional Ideas are Ideas are dis-
tive sequenc- sequence with somewhat connected
Structure ing of present- evidence of an connected to without evi-
ing ideas with organizational organizational dence of an
strong organi- pattern pattern organizational
zational pat- pattern
tern
Includes sig- Includes many Includes few Missing or
nificant rele- details to sup- details to sup- weak facts or
Content vant, and port infor- port infor- details
compelling mation or po- mation or po-
details or facts sition though sition many IV. ASSESSMENT
to support few are not all are not rele-
information relevant vant Directions: Read and carefully choose the answer on each ques-
tion. Write the letter of your answer on your answer sheet.
Evidence of Evidence of Few evidence New learning
Knowledge / genuine learn- learning of learning is not evident.
Application ing not just a though some most of the Not developed already incurred before the outflow of cash was made.
repeat of infor- information information or tied into Accrued expenseC. Accrued income
mation found appears to appears to past Deferred expenseD. Deferred income
just be given just be given knowledge
Virtually no Few spelling A number of So many
Grammar grammatical and grammati- spelling and spelling and
errors cal errors grammatical grammatical
errors errors

13 14
2. What type of accounts are Interest Receivable and Fees Receivable? References:
A. Asset C. Liability
B. Expense D. Revenue
3. When entries are adjusted it affects? Florendo, J. G. (2016). Fundamentals of Accountancy, Busi-
A. Income statement C. Both a and b ness, and Management 1. Rex Bookstore, Manila, Philippines.
B. Balance sheet D. Neither a or b Licuanan, P.B. (2016). Teaching Guide for Senior High School Fun-
4. Short term loans are loans to be paid for? damentals of Accountancy, Business, and Management 1. Commission
A. Less than 2 years C. Less than 3 years on Higher Education. 4th Floor, Commission on Higher Education, C.P.
B. Less than 4 years D. Less than 1 year Garcia Ave., Diliman, Quezon City, Philippines.

5. a decrease in value of a fixed asset is called as?

A. Depreciation C. Expiration
B. Appreciation D. Accumulation
6. What type of accounts are Deferred Revenues and Unearned Reve-
nues?
A. Asset C. Liability
B. Expense D. Revenue
7. What type of entry will increase the normal balance of the general
ledger account Service Revenues?
A. Debit C. Credit
B. Both a and c D. Neither a or c
8. Which of the following is an example of unearned income?
A. cash paid to supplier
B. advanced payment received from the customer
C. advanced received from the bank
D. cash discount received
9. What type of entry will decrease the normal balances of the general
ledger accounts Interest Receivable and Fees Receivable?
A. Debit C. Credit
B. Both a and c D. Neither a or c

10. In which account does unearned revenue fall?

A. Asset C. Liabilities
B. Capital D. None of the above

15 16