The document discusses various adjusting entries including deferrals, accruals, bad debts, depreciation, and inventory. It provides examples of each type of adjusting entry, such as prepaid rent, unearned revenue, accrued interest payable, accrued interest receivable, bad debts expense estimated using percentage of sales or aging of receivables, straight-line depreciation of equipment, and adjusting entry to record ending inventory. The document also includes practice questions and solutions for journalizing adjusting entries.

1. FUNDAMENTALS OF
ACCOUNTANCY, BUSINESS
AND MANAGEMENT

2. ACCOUNTING PROCESS
1.Analyzing Business Transactions and Journalizing in the General
Journal
2.Posting to the General Ledger
3.Trial Balance preparation
4.Journalizing and Posting Adjusting Entries
5.Financial Statements Preparation
6.Journalizing and Posting Closing Entries
7.Preparing Post-Closing Trial Balance
8.Journalizing and Posting Reversing Entries

3. ADJUSTING ENTRIES
Learning Objectives
1. Enumerate the common end-of-period adjustments.
2. Prepare adjusting entries.

4. ADJUSTING ENTRIES
• adjusting entries are entries made prior to the
preparation of financial statements to update
certain accounts so that they reflect correct balances
as of the designated time.

5. PURPOSE OF ADJUSTING ENTRIES
a. To take up unrecorded income and expense of the
period.
b. To split mixed accounts into their real and nominal
elements.

6. REAL, NOMINAL AND MIXED ACCOUNTS
a. RealAccounts (Permanentaccounts)– accounts thatare not
closed at the end ofthe accounting period.These accounts
include allbalance sheet accounts, except the “Owner’s
drawings” account.
b. NominalAccounts (Temporary accounts)– accounts that are
closed at the end ofthe accounting period.These accounts
include all income statement accounts, drawings account,
clearing accounts and suspense accounts.
c. Mixed accounts – accounts that have both real and nominal
accountcomponents.These accounts are subject to
adjustment.

8. EXAMPLES
• Office Supplies purchased on account amounting to
P50,000.The business used P25,000 only for this month.
• EntityA issued a 12%,P200,000,one-year, note payable on
November 1,2021. Entity A uses a calendar year period.The
principal and interest on the note are due on November 1,
2022.

9. TYPES OF ADJUSTING ENTRIES
A. DEFERRALS (PREPAYMENTS)
 Prepaid Assets – Paid but not yet used (ASSET)
 Unearned Income – Received payment from customers but not yet rendered
(LIABILITY)
B. ACCRUALS
 Accrued Expenses – incurred but not yet paid (LIABILITY)
 Accrued Income – earned but not yet received (LIABILITY)
C. NON-CASH EXPENSES (Estimates)
 Bad debts (Uncollectible) – accounts receivable (or trade accounts receivable) that
will not be collected or unlikely to be collected
 Depreciation - decrease in the value of asset
D. INVENTORY
 Adjustment of Merchandise Inventory for Merchandising

10. DEFERRALS
a. Pre-payments - a business making advanced payments for
goods or services to be received in the future.(Prepaid Assets)
Examples: Prepaid Rent,Prepaid Insurance and Supplies
b. Pre-collection -money received from a customer or client for
work that has not yet been performed.(Unearned Income)
Examples: Unearned Shopping Fees income, Advances from
Clients/Customers

11. A. PREPAID ASSETS
On July 1, 2021, your business pays for a one-year
advanced rent of ₱360,000. The advanced rent covers the
months of July 1, 2021 to June 30, 2022.
1.Asset method – under this method cash disbursements for items of
expenses are initially debited to an asset account. At the end of
the period, the incurred portion (‘used up’ or ‘expired’) is
recognized as expense while the unused portion remains as asset.
2.Expense method –under this method, cash disbursements for
items of expenses are initially debited to an expense account.
At the end of the period, the unused portion (‘not yet incurred’
or ‘unexpired’) is recognized as asset while the incurred portion
remains as expense.

12. On July 1, 2021, your business pays for a one-year advanced
rent of ₱360,000. The advanced rent covers the months of
July 1, 2021 to June 30, 2022.
Asset method – under this method cash disbursements for items of
expenses are initially debited to an asset account. At the end of the
period, the incurred portion (‘used up’ or ‘expired’) is recognized as
expense while the unused portion remains as asset.

13. On July 1, 2021, your business pays for a one-year advanced
rent of ₱360,000. The advanced rent covers the months of
July 1, 2021 to June 30, 2022.
Expense method – under this method, cash disbursements for items of
expenses are initially debited to an expense account. At the end of the
period, the unused portion (‘not yet incurred’ or ‘unexpired’) is recognized
as asset while the incurred portion remains as expense.

14. B. UNEARNED REVENUE/ INCOME
The business receives payment of the promotion to be
made for A Company’s Billboard amounting to P
240,000. This covers the services from January 1, 2021
to December 31, 2022.
1.Liability method – under this method, cash receipts from items of
income are initially credited to a liability account. At the end of the
period, the earned portion is recognized as income while the unearned
portion remains as liability.
2.Income method – under this method cash receipts from items of
income are initially credited to an income account. At the end of the
period, the unearned portion is recognized as liability while the earned
portion remains as income.

15. The business receives payment of the promotion to be made for
a company’s billboard amounting to P240,000. this covers the
services from January 1, 2021 to December 31, 2022.
Liability method – under this method, cash receipts from items of income are
initially credited to a liability account. At the end of the period, the earned
portion is recognized as income while the unearned portion remains as
liability.

16. The business receives payment of the promotion to be made for A
company’s billboard amounting to P 240,000. This covers the
services from January 1, 2019 to December 31, 2020.
Income method – under this method cash receipts from items of income
are initially credited to an income account. At the end of the period,
the unearned portion is recognized as liability while the earned portion
remains as income.

17. APPLICATION OF CONCEPTS
On August 1, 2019, a firm purchased a 1- year insurance
policy for 3,600 and paid the full premium in advance. For
December 31, 2019. How much should be recorded as
expense? What is the adjusting entry?

18. APPLICATION OF CONCEPTS
On Oct 1, 2019, a firm purchased a 1-year insurance policy for 2,400 and
paid the full premium in advance. The adjustment needed on December
31, 2019, to report the amount of insurance that had expired, would be:
A.a debit to Insurance Expense for 1,800 and a credit to
Prepaid Insurance for 1,800.
B.a debit to Insurance Expense for 2,400 and a credit to Cash for 2,400.
C.a debit to Insurance Expense for 600 and a credit to
Prepaid Insurance for 600.
D.a debit to Prepaid Insurance for 600 and a credit to Insurance Expense
for 600.

19. APPLICATION OF CONCEPTS
On October 1, 2019, Paige Turner Publishing received P 5,400 in cash for
subscriptions covering one year, recording the entry as a debit to Cash
and a credit to Unearned Subscriptions. The correct adjusting entry at
December 31, 2019, is
A.Debit Unearned Subscriptions P 1,350; credit Subscriptions Income
P 1,350.
B.Debit Unearned Subscriptions P 450; credit Subscriptions
Income P450.
C.Debit Unearned Subscriptions P 5,400; credit Subscriptions
Income P 5,400.
D.Debit Subscriptions Income P 1,350; credit Unearned
Subscriptions P 1,350.

20. APPLICATION OF CONCEPTS
The Supplies account has a trial balance of P 3,136. A year- end
inventory shows P 1,734 worth of supplies left at the end of the
year. The correct adjusting entry is:
A.debit Supplies P 1,402; credit Supplies Expense P 1,402
B.debit Supplies Expense P 1,734; credit Prepaid Supplies P1,734
C.debit Supplies Expense P 3,136; credit Supplies P 3,136
D.debit Supplies Expense P 1,402; credit Supplies P 1,402

21. ACCRUALS
a.Accrued Expense – Expenses Incurred but not yet
paid (Liability)
Examples: Utilities, Accrued salaries, Accrued interest on
notes payable
b.Accrued Income – earned but not yet received
Examples: Accrued interest on notes receivables

22. A. ACCRUED EXPENSES
Entity A issued a 12%, ₱200,000, one-year, note payable on
November 1, 2019 for the purchase of equipment.
Entity A uses a calendar year period. The principal and interest
on the note are due on November 1, 2020. What
is the adjusting entry on December 31, 2019?
Compute for the interest:
i = P X R X T where P = principal; R= rate; t=interest
i = 200,000 X .12 X 2/12 I = 4,000

23. Entity A issued a 12%, ₱200,000, one-year, note payable on
November 1, 2019 for the purchase of equipment.
Entity A uses a calendar year period. The principal and interest
on the note are due on November 1, 2020. What is the
adjusting entry on December 31, 2019?

24. EXAMPLE: MILLIE'S BAKERY EMPLOYEES EARN P4,500 A WEEK FOR A FIVE-DAY
WORK WEEK AND ARE PAID EVERY FRIDAY. IF DECEMBER 31 FALLS ON A
WEDNESDAY, CALCULATE THE AMOUNT THAT IS OWED AND SELECT THE
ADJUSTING ENTRY NEEDED TO RECORD THE OWED BUT UNPAID SALARIES AS
OF DECEMBER 31.
P 4,500 / 5 day = P900 per day. (P900 × 3 days (Mon./Tues./Wed.) = P2,700)

25. APPLICATION OF CONCEPTS
1. On June 1, 2019, Mighty Fast Flooring issued a 10-month, 9 percent note
for P 5,000. The note was recorded in the Notes Payable-Trade account. The
adjusting entry on December 31 to record the interest accrued (owed) on
the note is:
2. Determine the account and amount to be debited and the account and
amount to be credited for the following adjustment. On December 31,
2019, the Notes Payable account had a balance of P 6,000 for a 3-month, 9
percent note issued on November 1, 2019.
3. Determine the account and amount to be debited and the account and
amount to be credited for the following adjustment. On December 31,
2019, the Notes Payable account had a balance of P 12,000, for a 5-month,
8 percent note issued on December 1, 2019.

26. B. ACCRUED INCOME
Entity A received a 10%, ₱200,000, one-year, note receivable on
July 1, 2019 for the services rendered. Entity A uses a calendar
year period. The principal and interest on the note are due on
July 1, 2020. What is the adjusting entry on December 31, 2019?
Compute for the interest:
I = P X R X T where P = principal; R= rate; t=interest

27. Entity A received a 10%, ₱200,000, one-year, note receivable on July 1,
2019 for the services rendered. Entity A uses a calendar year period.
The principal and interest on the note are due on July 1, 2020. What is
the adjusting entry on December 31, 2019?

28. APPLICATION OF CONCEPTS
On December 1, 2019, a firm accepted a 6-month, 12 percent note for
P 10,000 from a customer. The adjusting entry on December 31 to
record the interest earned on the note is:
A.a debit to Interest Receivable for P 100 and a credit to
Interest Income for P 100
B.a debit to Interest Receivable for P 600 and a credit to
Interest Income for P 600.
C.a debit to Interest Income for P 100 and a credit to
Interest Receivable for P 100.
D.a debit to Interest Receivable for P 1,200 and a credit to
Interest Income for P 1,200.

29. BAD DEBTS (UNCOLLECTIBLE)
The expense is estimated because the actual amount of
uncollectible accounts is not known until later periods.
Methods used in determining the Bad debts
(Uncollectible)
A.Percentage of Accounts Receivables
B.Aging of Receivables
C.Percentage of Sales

31. Is a technique to estimate bad debts expense by classifying accounts receivable
of a business according to of length of time for which they have been
outstanding and then estimating the probability of non- collection for each
category.
Example: Entity A has totalreceivables of P 920,000with the following
categories:
Age Category Amount
Probability of
Noncollection
Uncollectible
Amount
1-30 days
700,000.00
2% 14,000.00
31-60 days
90,000.00
4% 3,600.00
61-90 days
100,000.00
7% 7,000.00
over 90 days
30,000.00
12% 3,600.00
TOTAL 28,200.00
B. AGING OF RECEIVABLES METHOD

33. C. PERCENTAGE OF SALES
Credit sales of Entity A during the year ended December 31, 2019 were
P 400,000. The company estimated that 2% of its credit sales will end
up uncollected. The allowance for doubtful debts of the company had a
credit balance of P10,000 on December 31, 2019.

34. DEPRECIATION
Is assigning or allocating of the cost of a plant asset (other than land)
to expense in the accounting periods that are within the asset's
useful life.
Accounting T
erms in Depreciation:
1.Salvage Value/ Residual Value – estimated resale value of an asset
at the end of its useful life
2.Useful life -estimated lifespan of a depreciable fixed asset , during
which it can be expected to contribute to company operations.
3.Depreciable cost – Cost minus Salvage value/ Residual Value
4.Depreciation – referring to the calculated expense of the fixed
assets charged for the period
5.Accumulated Depreciation -the cumulative depreciation of an
asset up to a single point in its life.

35. STRAIGHT-LINE DEPRECIATION (S/L) ALLOCATES AN
ASSET’S COST IN EQUAL AMOUNTS TO EACH
ACCOUNTING PERIOD OF ITS USEFUL LIFE.
Cost - salvage value
Estimated months of useful life
S/L depreciation =
On January 1, 2019, your business acquires computer
equipment for ₱120,000. You expect to use the computer over
the next 3 years. What is the adjusting entry on January 31,
2019 to take up depreciation expense?

36. INVENTORY, ENDING
Is the cost of those goods on hand at the end of a reporting
period
Determine the account and amount to be debited and the
account and amount to be credited for the following
adjustment. The company uses the periodic inventory system.
The physical count of inventory is amounting to P 45,000.

37. APPLICATION OF CONCEPTS
1.Your business has accounts receivable of ₱300,000. You estimated that out of that amount, 10%
is doubtful of collection. What is the adjusting entry to record the doubtful accounts?
2.Your business has accounts receivable of ₱300,000. You estimated that out of that amount, 10%
is doubtful of collection. Allowance for doubtful accounts has credit balance of P 5,000. What is
the adjusting entry to record the doubtful accounts?
3.Your business has accounts receivable of ₱300,000. 1-30 days age category has probability of
collection of 98% amounting to 150,000. Over 31 days has probability of collection of 60%
amounting to 150,000. What is the adjusting entry to record the doubtful accounts?
4.Your business has accounts receivable of ₱300,000. 1-30 days age category has probability of
collection of 98% amounting to 150,000. Over 31 days has probability of collection of 60%
amounting to 150,000. Allowance for doubtful accounts has credit balance of P 5,000. What is the
adjusting entry to record the doubtful accounts?
5.Determine the account and amount to be debited and the account and amount to be credited for
the following adjustment. During the year, the firm had net credit sales of P 560,000. Past
experience shows that 1.4 percent of the firm's net credit sales result in uncollectible accounts.

38. APPLICATION OF CONCEPTS
1.On January 2, 2019, a firm purchased equipment for 10,000.
Depreciation expense for the year ending December 31, 2019,
given the straight-line method, a 5- year useful life, and a
salvage value of 1,200. What is the entry for the depreciation of
the year?
2.Rose Bush Nursery purchased a delivery truck for 40,000. The
truck is expected to have a useful life of 5 years and a residual
value of 2,800. The company uses the straight-line method of
depreciation. If the truck was purchased on June 1, 2019, what
is the amount of depreciation expense for the truck for the
year ended December 31, 2019?

39. APPLICATION OF CONCEPTS
The trial balance of Marley Motorcycles shows Merchandise Inventory of
P 80,000. Based on a count taken on December 31, merchandise
inventory at the end of the year actually totaled
P 92,000. The company uses a periodic inventory system. The
adjusting entry to record the new merchandise inventory balance
would be:
A.a debit to Merchandise Inventory of 80,000 and a credit to Income
Summary for P 80,000.
B.a debit to Purchases of P 92,000 and a credit to Income Summary
for P 92,000.
C.a debit to Merchandise Inventory of P 92,000 and a credit to
Income Summary for P 92,000.
D.a debit to Merchandise Inventory of P 12,000 and a credit to
Purchases for P 12,000.

40. ⦁ QUESTIONS????
⦁ REACTIONS!!!!!