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Adjusting Entries

The document discusses accounting concepts related to adjusting entries made at the end of an accounting period. It covers prepaid expenses, accrued revenues and expenses, depreciation of assets, and provisions for bad debts. Specifically, it provides examples of adjusting entries made for prepaid rent, accrued salaries, accrued rent income, depreciation of furniture, and an allowance for bad debts.

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Rizza Morada
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214 views30 pages

Adjusting Entries

The document discusses accounting concepts related to adjusting entries made at the end of an accounting period. It covers prepaid expenses, accrued revenues and expenses, depreciation of assets, and provisions for bad debts. Specifically, it provides examples of adjusting entries made for prepaid rent, accrued salaries, accrued rent income, depreciation of furniture, and an allowance for bad debts.

Uploaded by

Rizza Morada
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Refers to any length of time in

which the life of the business is


divided. It may be monthly,
quarterly, semi-annually or
annually.
 To reflect proper amounts of
revenues realized and expenses
incurred during a period
 To show fair measure of the
assets, liabilities and owner’s
equity
 Expiration of prepaid expenses
 Realization of income collected in
advance
 Accrual of expenses
 Accrual of income
 Provision for bad debts
 Provision for depreciation
Prepaid expenses
Time of payment –
Asset
As it is used – Expense
 ASSET METHOD
On November 1, 2019, Santos paid P30,000
for a 3-month rental of the office space.
ENTRY MADE:
Nov 1 Prepaid Rent P30,000
Cash P30,000
ADJUSTING ENTRY:
Dec 31 Rent Expense P20,000
Prepaid Rent P20,000
 EXPENSE METHOD
On November 1, 2019, Santos paid P30,000
for a 3-month rental of the office space.
ENTRY MADE
Nov 1 Rent Expense P30,000
Cash P30,000
ADJUSTING ENTRY:
Dec 31 Prepaid Rent P10,000
Rent Expense P10,000
 INCOME METHOD
On Nov 1, 2019, the business received
P30,000 cash from the tenant of the vacant
space for 3 mos.
ENTRY MADE:
Nov 1 Cash P30,000
Rent Income P30,000
ADJUSTING ENTRY:
Dec 31 Rent Income P10,000
Unearned Rent P10,000
 LIABILITY METHOD
On Nov 1, 2019, the business received
P30,000 cash from the tenant of the vacant
space for 3 mos.
ENTRY MADE:
Nov 1 Cash P30,000
Unearned Rent P30,000
ADJUSTING ENTRY:
Dec 31 Unearned Rent P20,000
Rent Income P20,000
Office employees are paid every two weeks.
On December 31, five days’ salary of an
office employee at P300 per day was
accrued.

ADJUSTING ENTRY:
Dec 31 Salaries Expense P1,500
Accrued Salaries P1,500
A tenant occupying the right side of the shop
is two months indebted. His monthly rental
is P5,000 per month.

ADJUSTING ENTRY:
Dec 31 Accrued Rent Income P10,000
Rent Income P10,000
Bad Debts Expense – loss from
uncollectible accounts

Allowance for Bad Debts – a


deduction from Accounts Receivable
Bad Debts Expense P 300
Allowance for Bad Debts P 300

Illustration:

Accounts Receivable P 1,000


Less: Allowance for Bad Debts 300
Net Realizable Value P 700
1. The allowance for bad debts is increased
by 10% of accounts receivable.
Accounts receivable = P 70,000

Bad debt estimate: P70,000 x .10 = P7,000

Adj. Entries
Bad Debts Expense P7,000
Allowance for Bad Debts P7,000
2. The allowance for bad debts is increased to
10% of accounts receivable.

Bad debt estimate: P70,000 x. 10 = P7,000


P7,000 – P 5,000 = P 2,000

Bad Debts Expense P2,000


Allowance for Bad Debts P2,000
The value of fixed assets decrease
over time due to:
1. Wear and tear from operations
2. Inadequacy and obsolescence

The cost of the fixed asset is


allocated to the duration or number
of years of its useful life.
Original Cost – Salvage Value
Depreciation = Useful Life

A delivery truck was purchased for


P250,000. It is estimated to last 10 years
after which it shall have a value of
P50,000.
Depreciation
– an expense account

Accumulated Depreciation
– contra asset account, deducted from
the related asset account which was
depreciated.
Depreciation for a Fractional Period

On May 1, 2019, a furniture was


purchased for P48,000. The asset is
estimated to have 10 years of useful life.

D = P48,000 – 0
10 yrs
= P 4,800 per year
If depreciation per year is P4,800.00, then
monthly depreciation is P400.00.
P 4,800 / 12 months = P400/month

If depreciation per month is P400, then the


total depreciation for the year 2019 is
P3,200.00
P400/mo. X 8 mos. (May – December
2019) = P3,200.00
ADJUSTING ENTRY:

Depreciation Expense-Furniture P3,200


Accumulated Depreciation P 3,200
– Furniture
A. 3% of the accounts
receivables, P75,000, has an
allotted bad debts.
B. Prepaid rent, P50,000,
represents four (4) months
starting October 1, 2013
C. 45% of the
supplies are still on
hand.
D. Transportation
vehicle, P435,000, has
7% depreciation per
annum-purchased
March 1, 2013.
E. Furniture and
Fixtures, P165,000, has
a 4.5% depreciation per
annum, purchased
December 1, 2013.
F. Equipment and Utensils,
P116,000, has an
estimated useful life of 10
years with P5,000 scrap
value, purchased February
1, 2013.
G. Accounts receivable,
P75,000, has an interest
rate of 12% per annum
due on November 10,
2013.
H. Accrued expenses are:
Wages Expense P3,500
Utilities Expense P2,500
Seatwork : Exercise 2.11
Letter A only. Basic
Accounting for High School,
Page 228. ANSWER FOR
10 MINUTES ONLY

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