Fabm1 Preparing Adjusting Entries

FABM1
Module 9:
Preparing Adjusting Entries
What I Need to Know
This module was designed and written with you in mind. It is here to help you master
on how to prepare adjusting entries. The scope of this module permits it to be used
in many different learning situations. The language used recognizes the diverse
vocabulary level of students. The lessons are arranged to follow the standard
sequence of the course. But the order in which you read them can be changed to
correspond with the textbook you are now using.
The module has one lesson, namely:

• Lesson 1 – Preparing Adjusting Entries
After going through this module, you are expected to:

1. define adjusting entries;
2. enumerate the classification of adjusting entries;
3. prepare adjusting entries;
4. analyze the accounts to be adjusted; and
5. solve problem involving adjusting entries
2
What I Know
Read and understand each item carefully. Choose the correct answer and write the
corresponding letter of your choice on a separate sheet of paper.
1. XYZ Co. prepared their financial statement without adjusting the accrued
revenue, this would cause
a. An understatement of revenue and an understatement of liabilities
b. An understatement of assets and an understatement of revenue.
c. An understatement of revenue and an overstatement of liabilities.
d. Income to be overstated.
2. ABC Company recorded the advance payment as asset account, what should
be the adjusting entry at the end of the period?
a. Debit the asset and credit the expense
b. Debit the expense and credit the asset
c. Debit the revenue and credit the liability
d. Debit the liability and credit the revenue
3. It is estimated that 5% is the uncollectible for this accounting period. The

company has total service revenue of P250,000 with P100,000 of cash
revenue. The required allowance for doubtful accounts is
a. P17,500 B. P12,500 C. P 7,500 D. P 5,500
4. The company recorded the Accrued Expense at the end of the period, this
would cause
a. Decrease in asset C. Increase in assets
b. Decrease in liabilities D. Increase in expense
5. It refers to the allocation of depreciable cost over the useful life of tangible
assets except land is
a. Accrual B. Depreciation C. Prepayments D. Precollections
6. Adjusting journal entries are recorded in the

a. Journal B. Ledger C. Trial balance D. Worksheet
7. X Co. recorded the prepayment as expense, the adjustment should be

A. Debit to asset C. Credit to income
B. Debit to expense D. Credit to liability
8. BB Co. recorded the precollection as liability, the adjustment should be a

A. Debit to liability C. Credit to asset
B. Debit to income D. Credit to expense
9. Adjusting entries are prepared

A. Always at the end of accounting period.
B. Monthly, company used calendar year
C. Every December 31 of the year, company used fiscal year.
D. Every December 31 of the year, company used interim period.
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10. These are revenues that have been earned but not yet collected.
A. Accrual B. Depreciation C. Prepayments D. Precollections
11. Which of the following is true? An unearned revenue is a/an

A. Asset B. Expense C. Liability D. Revenue
12. Which of the following method of estimating doubtful accounts does not
stated the required allowance for doubtful accounts?
A. Aging of accounts receivables C. Services rendered on account
B. Percentage of accounts receivable D. None of these
13. This means to recognize revenue earned and expenses regardless to when
they are collected and paid by the business.
A. Accruals C. Prepayments
B. Deferrals D. Precollections
14. The business recorded the advance payment of the customer as liability
account. At the end of the period, no adjusting entry was made. This would
cause
A. An overstatement of asset and understatement of expense
B. An overstatement of expense and understatement of asset
C. An understatement of liability and overstatement of revenue
D. An understatement of revenue and overstatement of liability
15. It is the value of asset at the end of its useful life.

A. Depreciable Cost C. Salvage value
B. Fair market value D. Acquisition cost
4
Lesson
Preparing Adjusting Entries
1
Before you start this lesson, I will leave a question for you to think or somehow a
guess what is this module all about. And here is the question: If you were the
accountant of the company, what will you do if the assets, liabilities, revenues and
expenses are overstated or understated?
I know you have your own answer to this question but reading with understanding
the whole module is the key. Common and let’s start the module!
What’s In
Notes to the Teacher

The teacher should emphasize to the learners the essential of
thorough familiarization and understanding on this lesson
because the skills on this topic will help the learners to keep
them going through the whole cycle of accounting.
In accounting, before the preparation of financial statements, all accounts must be

accurately recorded. In doing this, accountants have different ways to keep the
accounts updated in order to reflect its true values. And that process is done
through adjusting the journal entries.
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What’s New
The following are the related accounts in adjusting journal entries. You should be
familiar first to their normal balances so that adjusting journal entries will be
easier for you.
Activity 9-1. Identify whether the normal balances of the following accounts is
debit or credit. An example is done for you.
Accounts and Account Titles Normal Balance

Example: Asset Debit
1. Liability ________________
2. Prepaid Rent ________________
3. Revenue ________________
4. Unearned revenue ________________
5. Expense ________________
6. Accrued Interest Receivable ________________
7. Accrued Interest Payable ________________
8. Allowance for Doubtful Accounts ________________
9. Accumulated Depreciation ________________
10.Depreciation Expense ________________
What is It
You are now in the fifth step of accounting cycle, preparing adjusting entries.
What are adjusting entries and why do businesses need to prepare them?
Adjusting entries are journal entries used to adjust or update the record of the
business.
They are usually made at the end of accounting period to ensure that revenues are
recognized in the period in which they earned and that expenses are recognized in
the period in which they incurred.
Businesses prepared adjusting entries in order to comply with the accrual basic
assumption (already discussed in previous module about accounting concepts and
principles) and to separate mix accounts that have components of assets and
expense, liability and income and other accounts that used estimates in recording
expense.
Adjusting entries have various classifications. These are the Accruals, Deferrals,
Estimated uncollectible accounts and Depreciation.
Adjusting Entries for Accruals
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Accruals means to recognize revenue earned without regard to when they are
collected, and to recognize expenses without regard to when they are paid by the
business.
Under the classification of accruals, we have accrued revenues and accrued

expenses.
Accrued Revenues are revenues that have been earned but not yet collected or
received. To comply with the accrual principle, these revenues should be included
in the revenues for the period.
Examples of accrued revenues are the income earned in an interest-bearing
promissory note, renting properties and other income earned for the period but not
yet received.
The adjusting journal entry for accrued revenue would be:
GENERAL JOURNAL Page: 20

Particulars
Date (Account Titles and Explanation) PR Debit Credit
Dec 31 Accrued (Appropriate) Receivable xxx
(Appropriate) Income or Revenue xxx
To record revenue earned.
To illustrate, assume the following:

On October 31, 2020, ABM Services received a 6-month note from STEM Co.
amounted to P180,000 with 12% interest payable on maturity date. Record the
adjusting entry as of December 31, 2020.
The adjusting journal entry would be:

Particulars
Dec 31 Accrued Interest Receivable 3,600
Interest Income 3,600
To record interest income earned.
To compute for the interest, apply the formula of simple interest, I=PRT. Where I is
for interest, P for principal, R for rate and T for time. The accrued interest is two
months, November and December so the time would be 2/12. To compute for
Interest: P180,000 x 12% x 2/12 = P3,600.
➢ As of December 31, 2020, the ABM Services already earned two months
interest on the promissory note. The two months’ income should be recorded
in the year 2020 even the interest will be collected on April 30, 2021.
Now let’s discuss the Accrued Expenses.

Accrued Expenses are expenses that have been incurred but not yet paid.
Examples of accrued expenses are unpaid rent, interest in issuing note and other
expenses incurred within the accounting period but not yet settled.
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The adjusting entry for accrued expense would be:

Particulars
Dec 31 (Appropriate) Expense xxx
Accrued (Appropriate) Payable xxx
To record expense incurred.
On October 31, 2020, the STEM Co. issued a 6-month note as payment for the
service rendered by ABM Services. The note is amounted to P180,000 with 12%
interest.

Particulars
Dec 31 Interest Expense 3,600
Accrued Interest Payable 3,600
To record unpaid interest.
Note: Please refer to the computation under Accrued Revenue.
➢ As of December 31, 2020, STEM Co. already incurred two months interest
expense on the promissory note. The two months interest expense should be
recorded in the year 2020 even the interest will be paid on April 30, 2021.
Let’s go to the Adjusting Entries for Deferrals!

Deferrals are the advanced payment paid by the business to the suppliers and
advanced payment received by the business from the customers. There are two
types of deferrals, the prepaid expenses and unearned revenues.
Prepaid Expenses or Prepayments are advance payment of the business for

expenses not yet incurred or used. Some of the examples of prepayments are when
business paid rent for six months, purchase office supplies consumable for 2 years
and paid insurance for one year.
There are two methods in recording prepayments or prepaid expenses. These are
the asset and expense method.
The Asset Method

In asset method, the advance payment is recorded as asset and used the asset
account title Prepaid (Appropriate) account. If adjusting entry was not made at the
end of accounting period, asset account will be overstated. To adjust the amount of
asset, a debit to expense and credit to asset should be made at the end of
accounting period.
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Particulars
Dec 31 (Appropriate) Expense xxx
Prepaid (Appropriate) xxx
To recognize the expired portion of asset account
To Illustrate, assume the following:
On September 1, 2020, HUMSS Cafe paid 6-month rent to TVL Commercial

Building for P36,000. Prepare the adjusting entry as of December 31, 2020.
The journal entry upon payment on September 1 would be:

Particulars
Sept 1 Prepaid Rent 36,000
Cash 36,000
To record payment of six months rent.
The Adjusting journal entry on December 31, 2020 would be:

Particulars
Dec 31 Rent Expense 24,000
Prepaid Rent 24,000
To recognize incurred portion of rent
➢ On September 1, upon payment, HUMSS Café debited the asset account title
Prepaid Rent, the advanced rent for six-month. At the end of accounting
period, December 31, the P36,000 is not totally asset account because it has
an expense account (the four months used from September to December
2020). To separate the two accounts, the asset and expense, and to adjust the
overstated asset and understated expense, HUMMS Café need to prepare an
adjusting entry by debiting expense account title Rent Expense and crediting
asset account title Prepaid Rent.
The Expense Method

In expense method, the advance payment is recorded as expense and used the
expense account title (Appropriate) Expense. If adjusting entry was not made at the
end of accounting period, the expense account will be overstated. To adjust the
amount of expense, a debit to asset and credit to expense should be made at the
end of accounting period.

Particulars
Dec 31 Prepaid (Appropriate) xxx
(Appropriate) Expense xxx
To recognize the expired portion of asset account
9
On September 1, 2020, HUMSS Cafe paid 6-month rent to TVL Commercial

Building for P36,000. Prepare the adjusting entry as of December 31, 2020.
The Journal entry upon payment on September 1 would be:

Particulars
Sept 1 Rent Expense 36,000
Cash 36,000
To record payment of six months rent.

Particulars
Dec 31 Prepaid Rent 12,000
Rent Expense 12,000
To recognize unexpired portion of rent
➢ On September 1, upon payment, HUMSS Café debited the expense account

title Rent Expense P36,000, for the expense in renting space for six months.
At the end of accounting period, December 31, the P36,000 is not totally
expense account because it has an asset account (the two months unused,
January and February 2021). To separate the two accounts, the expense and
asset, and to adjust the overstated expense and understated asset, HUMMS
Café need to prepare an adjusting entry by debiting the asset account title
Prepaid Rent and crediting the expense account title Rent Expense
The second type of deferrals is Unearned Revenues.

Unearned revenues or pre-collections are revenues already received but not yet
earned.
There are two methods in recording precollections, the liability method and revenue
method.
The Liability Method

In liability method, the cash received is recorded as liability and used the account
title Unearned (Appropriate) Revenue. If adjusting entry was not made at the end of
accounting period, the liability account is overstated. To adjust the amount of
liability, a debit to liability and credit to revenue should be made at the end of
accounting period.

Particulars
Dec 31 Unearned (Appropriate) Revenue xxx
(Appropriate) Revenue xxx
To recognize earned portion of liability account
10
On September 1, 2020, TVL Commercial Building received P36,000 cash from

HUMSS Co. for six months rent. Prepare the adjusting entry on December 31,
2020.
The journal entry to record the receipt of the cash on September 1 would be:

Particulars
Sept 1 Cash 36,000
Unearned Rent Revenue 36,000
To record receipt of cash for service to be rendered

Particulars
Dec 31 Unearned Rent Revenue 24,000
Rent Revenue 24,000
To recognize earned portion of unearned rent
➢ On September 1, upon receipt of the cash, TVL credited the liability account
title Unearned Rent Revenue P36,000, the liability for six months. At the end
of accounting period, P36,000 is not totally liability account because it has a
revenue account (four months earned from September to December). To
separate the two accounts, the liability and revenue, and to adjust the
overstated liability and understated revenue, HUMSS Café need to prepare an
adjusting entry by debiting the liability account title Unearned Rent Revenue
and crediting the revenue account title Rent Revenue.
The Revenue Method

In revenue method, the business recorded the amount received as revenue and
used the account title (Appropriate) Revenue. If adjusting entry was not made at
the end of accounting period, the revenue account is overstated. To adjust the
amount of revenue, a debit to revenue and credit to liability should be made at the
end of accounting period.

Particulars
Dec 31 (Appropriate) Revenue xxx
Unearned (Appropriate) Revenue xxx
To recognize the unearned portion of the revenue account
11
On September 1, 2020, TVL Commercial Building received P36,000 cash from
HUMSS Co. for six months rent. Prepare the adjusting entry on December 31,
2020.
The journal entry to record the receipt of the cash on September 1 would be:

Particulars
Sept 1 Cash 36,000
Rent Revenue 36,000
To record receipt of cash for service to be rendered

Particulars
Dec 31 Rent Revenue 12,000
Unearned Rent Revenue 12,000
To recognize unearned portion of rent revenue
➢ On September 1, upon receipt of the cash, TVL credited the revenue account
title Rent Revenue, the revenue for succeeding six months. At the end of the
accounting period, P36,000 is not totally revenue account because it has a
liability account (two months unearned, January and February 2021). To
separate the two accounts, the revenue and liability, and to adjust the
overstated revenue and understated liability, HUMSS Café need to prepare an
adjusting entry by debiting the revenue account title Rent Revenue and
crediting liability account title Unearned Rent Revenue.
We are now in the third classification of adjusting entries, the Uncollectible

Accounts, Doubtful accounts or Bad debts.
Uncollectible accounts are an expense that refers to the portion of accounts

receivable that is in doubt of being collected.
Adhering to the concept of conservatism or prudence, determining doubtful

accounts at the end of each accounting period shows how prudent the business is
in terms of not overstating its income.
There are two methods in recording uncollectible accounts, the allowance method
and direct method.
In Direct method or “actual write-off method”, businesses recognized bad debts

only when portion of accounts receivable is confirmed to be uncollectible. The
expense is directly deducted from the accounts receivable by debiting the Bad
Debts Expense.
In Allowance method, businesses recognized bad debts even the portion of the
accounts receivable is only estimated to be uncollectible. The expense is not
directly deducted from the accounts receivable instead it is credited to Allowance
for Doubtful Accounts. At the end of accounting period, the provided allowance is
deducted from Accounts Receivable.
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In this lesson, we will discuss only the allowance method. The following are three
methods of estimating doubtful accounts:
1. Percentage of accounts receivable
2. Percentage of services rendered on account
3. Aging the accounts receivable
The adjusting entry for doubtful accounts is:

Particulars
Dec 31 Doubtful Accounts Expense xxx
Allowance for Doubtful Accounts xxx
To record provision of doubtful accounts.
1.Percent of Accounts Receivable

Before the preparation of financial statements, ABM Services estimates that 10% of
Accounts Receivable is bad debts. The Accounts Receivable has a balance of
P150,000 and Allowance for Doubtful Accounts is P10,000. Compute for the
required allowance of doubtful accounts and prepare the necessary adjusting entry
on March 31, 2020.
The adjusting entry would be:

Particulars
Mar 31 Doubtful Accounts Expense 5,000
Allowance for Doubtful Accounts 5,000
To record estimated uncollectible accounts
➢ To compute for the required allowance, multiply the amount of Accounts

Receivable by the percentage of uncollectible: P150,000 x 10% = P15,000. The
required allowance is P15,000 but the recorded allowance is only P10,000.
This means the expense account title Doubtful Accounts Expense and contra-
asset account title Allowance for Doubtful Accounts are understated by
P5,000.
2. Aging of Accounts Receivable

Before the preparation of financial statements, ABM Services estimates that the
uncollectible is based on the information in aging of receivables. The company’s
aging of receivables report shows the following:
Ages of accounts
Receivable Balance
61-120 days P 30,000
121 -180 days 50,000
180 -365 days 70,000
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The company estimates that 5% of the ages 61-120 days; 7% of ages 121-180 days;
and 10% of ages 180-365 days are bad debts. As per ledger, the Allowance for
Doubtful Account is P10,000. Compute the require allowance and prepare the
adjusting entry for June 30, 2020.
To compute for the require allowance
61-120 days = P 30,000 x 5% = P 1,500

121 -180 days = 50,000 x 7% = 3,500
180 -365 days = 70,000 x 10% = 7,000
Required Allowance P 12,000
The adjusting entry would be:

Particulars
Jun 30 Doubtful Accounts Expense 2,000
To record estimated uncollectible accounts
➢ The required allowance is P12,000 but the recorded is P10,000. This means
the expense account title Doubtful Accounts Expense and contra-asset
account title Allowance for Doubtful Accounts are understated by P2,000.
3. Percent of Service Rendered on Account

ABM Services assume that the doubtful accounts is 3% of the service revenue on
account. As of Oct 31, 2020, the data are as follow:
Service Revenue P 850,000
The total service revenue rendered on cash is P500,000. Solve for the required
doubtful accounts and prepare the adjusting at the end of October 31, 2020.

Particulars
Dec 31 Allowance for Doubtful Accounts 1,000
Doubtful Accounts Expense 1,000
To adjust overstated doubtful accounts.
➢ To compute the required allowance, solve first the accounts receivable.
Subtracting the revenue rendered on cash from the total Service Revenue you
will get the total Accounts Receivable: P850,000-P550,000 = P350,000. This
means the expense account title Doubtful Accounts Expense and contra-asset
account title Allowance for Doubtful Accounts are understated by P500.
Let us now discuss the last classification of adjusting entries, the Depreciation.
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Depreciation is the allocation of depreciable cost of an asset over its estimated
useful life in years.
Depreciation is only applies to tangible noncurrent assets or the property, plant
and equipment, except land. These assets are expected to provide benefit over
several years to the business, they should first be recorded as assets and their cost
is gradually expensed over its useful life. This used portion is called “depreciation
expense”
The adjusting journal entry for depreciation is:

Particulars
Dec 31 Depreciation Expense xxx
Accumulated Depreciation xxx
To record depreciation for the period.
Some of the methods in computing depreciation expense are straight-line, sum-of-

years digit, declining and double declining methods. In this module, only straight-
line method is discussed.
The formula for depreciation is as follows:
Annual Depreciation = Acquisition Cost – Salvage Value
Estimated useful life
Acquisition Cost is simply the purchase price of the asset. Salvage value is the
value of the asset at the end of its useful life. It is also being referred to as residual
value or scrap value. Depreciable Cost is the difference between the acquisition
cost and the salvage value. Estimated useful life is the estimated number of years
an asset can be used in the business.

On June 1, Shane Photography purchase digital camera for P85,000. The
equipment has an estimated useful life of five years. Ms. Shane allocate 10% of the
acquisition cost for salvage value.
The computation for the annual depreciation is as follows:
Annual Depreciation = Acquisition Cost – Salvage Value

Estimated useful life
= P85,000 – (P85,000x10%)
5
= P85,000-P8,500
5
= P 15,300

Particulars
Dec 31 Depreciation Expense 8,925
Accumulated Depreciation 8,925
To record depreciation for the period.
15
➢ The annual depreciation is P15,300. Annual depreciation means the
depreciation expense for the whole year. Is it right to record the whole P15,300
for Shane Photography’s depreciation? Of course, no, because the equipment
was acquired last June 1 and the computation of depreciation will start only
on the date of acquisition until the end of accounting period. Dividing the
annual depreciation by 12 months you will get the monthly depreciation.
Multiplying monthly depreciation by 7 months you will get P 8,925, the
depreciation of the equipment from June 1 to December 31.
What’s More
Activity 9-2 Perfect Match

Identify the word or term being described in the sentences by matching the words
or terms labeled A to J. Write your answer on separate sheet of paper.
A. Accruals Accrued Acquisition Allowance Depreciation
expenses Cost Method expense
F. Deferrals Depreciable H. Direct I. Bad debts Monthly
Cost Method expense Depreciation
1. This classification of adjusting entry has accrued revenues and accrued

expenses.
2. It is the difference between the acquisition cost and the salvage value.
3. These are expenses that have been incurred but not yet paid.
4. This method of recording uncollectible accounts records bad debts expense
only when a specific accounts receivable is ascertained to be worthless.
5. It refers to the purchase price of the asset.
6. There are unearned revenues and prepaid expenses in this classification of
adjusting entry.
7. This method of recording uncollectible accounts records bad debts expense
even the uncollectible is only estimated.
8. It refers to the estimated expense from a portion of accounts receivable.
9. This amount is computed by dividing the annual depreciation by 12 months.
10. It refers to the estimated expense allocated to the tangible asset (except
land).
What I Have Learned
Activity 9-3. You Made Me Complete

Complete the statement to make it correct. Write the word or words on the space
provided.
16
1. __________ are adjustments used to bring the assets, liabilities, revenues and
expenses up-to-date at the end of accounting period.
2. Accruals means to recognize __________ without regard to when they are collected
3. And to recognize _____ without regard to when they are paid by the business.
4. _____ are expenses that have been incurred but not yet paid.
5. There are two types of deferrals, the __________
6. and __________.
7. To adjust the amount of prepaid expense under asset method of prepayments, a
debit to __________ and
8. a credit to __________should be made at the end of accounting period.
9. __________ is an expense that refers to the portion of accounts receivable that is
doubt of being collected.
10. __________ is the allocation of depreciable cost of an asset over its useful life.
What I Can Do
Activity 9-4
As a senior high school in your school, you were required to undergo Work
Immersion in a bank. You were assigned in accounting department and your
immediate superior instructed you to conduct an audit to the following
transactions:
1. The bank acquired Furniture and Fixtures last February 1, 2020 for
P125,000. The said asset has a salvage value of P20,000 after its estimated
useful life of 10 years.
2. The payment for one-year rent of P96,000 dated January 1, 2020 was
debited to Prepaid Rent.
3. The Notes Receivable of P200,000 dated February 29, 2020 with 15%
interest is collectible after six months.
Prepare the adjusting journal entries as of June 30, 2020 (with computation in
good form)
Assessment
Test I: True or False

Write TRUE if the statement is correct and FALSE if the statement is incorrect.
1. All adjusting entries require to analyze the source document before they
recorded.
2. Prepaid expense is an expense account with a debit normal balance.
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3. All property, plant and equipment or tangible assets are subject to
depreciation.
4. If the business estimated the accounts to be uncollectible, only the two
methods of recording bad debts is applicable for the provision.
5. Adjusting journal entries are usually made at the end of accounting period,
and this is every December 31 only.
6. To accrue the revenue earned increases both asset and revenue accounts.
7. Prepayment is a mixed account of revenue and liability at the end of
accounting period.
8. If the business used expense method in recording advance payment, the
adjustment would be a credit to prepaid expense.
9. If the company acquired equipment this period, part of the adjusting entry
would be a debit Accumulated Depreciation.
10. The asset account will be overstated if precollection under revenue method is
not adjusted.
Test II: Adjusting Entries

Directions: Prepare the adjusting entries for the following transactions:
1. EIM Services received a one-year note from a customer amounting to
P300,000 with 8% interest on March 31, 2019. Record the adjusting journal
entry at the end of December 31, 2019.
2. On October 30, 2020, ABM Accounting Services issued a 6-month note to

e-Tech Co. amounting to P180,000, 15% interest. On December 27, the
company received PELCO bill amounting to P3,250 will be paid next year. Give
the adjusting journal entry on December 31, 2020.
3. On January 1, 2019, SKL Co. paid P48,000 insurance premiums for two years.
Prepare the adjusting journal entry on June 30, 2019. (Expense method)
4. The company purchase office supplies amounting to P8,500 on January 1,

2018. At the end of the year, unused Office Supplies amounted to P5,700.
Give the adjusting journal entry on December 31, 2018.
5. On May 1, 2020, Dr. Miles received P30,000 payment to be rendered for six
months. Upon receipt, Dr. Miles credited the account title Dental Fees. Record
the adjusting journal entry on June 30, 2020.
6. On December 1, 2019, Gardening Services received P24,000 as advance
payment for the service to be rendered for three months. Upon receipt of the
cash the company credited Unearned Revenue. Give the adjusting journal
entry on December 31, 2019.
7. The Accounts Receivable has a balance of P65,000. That company estimates

that 8% of this amount will be uncollectible. Record the adjusting journal
entry on December 31, 2020.
8. The Service Revenue has a balance of P300,000 and half of this amount is
rendered on cash. The company already recorded Allowance for doubtful
accounts of P9,000. Give the adjusting journal entry on December 31, 2020 if
the provision of uncollectible accounts is 8%.
9. The company estimates that 6% of accounts receivable are doubtful of being

collected. Accounts Receivable shows a balance of P90,000 and Allowance for
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doubtful accounts of P1,500. Give the adjusting journal entry on December
31, 2020.
10. On June 30, 2020, the company acquired a building for P3,200,000. The
building has an estimated useful life of 25 years and an estimated salvage
value of P200,000. Record the provision for depreciation on December 31,
2020.
Additional Activities
Activity 9-5.
Direction: Indicate whether the normal balance and the adjusting journal entry
should be of the following accounts is debit or credit. An example is done for you.
Normal Adjusting JE
Balance Should be
Debit/Credit Debit/Credit
Example: Asset is overstated Debit Credit
1. Accrued Salaries Payable is overstated ________ ________
2. Prepaid Subscription is understated ________ ________
3. Unearned revenue is understated ________ ________
4. Supplies Expense is overstated ________ ________
5. Dental Fees is overstated ________ ________
6. Bad Debts Expense is understated ________ ________
7. Accumulated Depreciation is understated ________ ________
8. Allowance for Doubtful Accounts is overstated ________ ________
9. Accrued SSS Payable is understated ________ ________
10.Unused Supplies is understated ________ ________
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FABM1

The module has one lesson, namely:

After going through this module, you are expected to:

3. It is estimated that 5% is the uncollectible for this accounting period. The

6. Adjusting journal entries are recorded in the

7. X Co. recorded the prepayment as expense, the adjustment should be

8. BB Co. recorded the precollection as liability, the adjustment should be a

9. Adjusting entries are prepared

11. Which of the following is true? An unearned revenue is a/an

15. It is the value of asset at the end of its useful life.

Notes to the Teacher

In accounting, before the preparation of financial statements, all accounts must be

Accounts and Account Titles Normal Balance

Adjusting Entries for Accruals

Under the classification of accruals, we have accrued revenues and accrued

GENERAL JOURNAL Page: 20

To illustrate, assume the following:

GENERAL JOURNAL Page: 20

Now let’s discuss the Accrued Expenses.

GENERAL JOURNAL Page: 20

To illustrate, assume the following:

The adjusting journal entry would be:

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Note: Please refer to the computation under Accrued Revenue.

Let’s go to the Adjusting Entries for Deferrals!

Prepaid Expenses or Prepayments are advance payment of the business for

The Asset Method

The adjusting journal entry would be:

To Illustrate, assume the following:

On September 1, 2020, HUMSS Cafe paid 6-month rent to TVL Commercial

The journal entry upon payment on September 1 would be:

GENERAL JOURNAL Page: 11

The Adjusting journal entry on December 31, 2020 would be:

GENERAL JOURNAL Page: 20

The Expense Method

The adjusting journal entry would be:

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On September 1, 2020, HUMSS Cafe paid 6-month rent to TVL Commercial

The Journal entry upon payment on September 1 would be:

GENERAL JOURNAL Page: 11

The Adjusting journal entry on December 31, 2020 would be:

GENERAL JOURNAL Page: 20

➢ On September 1, upon payment, HUMSS Café debited the expense account

The second type of deferrals is Unearned Revenues.

The Liability Method

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On September 1, 2020, TVL Commercial Building received P36,000 cash from

GENERAL JOURNAL Page: 11

The Adjusting journal entry on December 31, 2020 would be:

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The Revenue Method

The adjusting journal entry would be:

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To illustrate, assume the following:

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The Adjusting journal entry on December 31, 2020 would be:

GENERAL JOURNAL Page: 20

We are now in the third classification of adjusting entries, the Uncollectible