Module 3 - The Adjusting Process
Module 3 - The Adjusting Process
Module 3 - The Adjusting Process
Learning Objectives:
1. Describe the nature of the adjusting process.
2. Journalize entries for accounts requiring adjustment.
3. Summarize the adjustment process.
4. Prepare an adjusted trial balance.
Prepaid Expenses:
SLA’s supplies account has a balance of Php2,000 on the unadjusted trial balance. Some of these
supplies have been used. On December 31, a count reveals that the amount of supplies on hand is
Php 760.
Unearned Revenues:
SLA received cash amounting to Php360 for rent which represents three months rental from the
retailer.
Accrued Revenues:
SLA signed an agreement with Danker Co. on December 15 to provide services at rate of Php20
per hour. As of December 31, SLA had provided 25 hours of services. The revenue will be billed
on January 15.
Accrued Expenses:
SLA pays it employees biweekly. During December, SLA paid wages of Php950 on December
13 and Php1,200 on December 27. As of December 31, SLA owes Php250 of wages to
employees for 2 days work.
Depreciation Expense
Fixed assets, or plant assets, are physical resources that are owned and used by a business
and are permanent or have a long life.
As time passes, a fixed asset losses its ability to provide useful services. This decrease in
usefulness is called depreciation.
All fixed assets, except land, lose their usefulness and, thus, are said to depreciate.
As a fixed asset depreciated. A portion of its cost should be recorded as an expense. This
periodic expense is called depreciation expense.
The fixed asset account is not decrease (credited) when making the related adjusting
entry. This is because both the original cost of a fixed asset and the depreciation recorded
since its purchase are reported on the balance sheet. Instead, an account entitled
Accumulate Depreciation is increased (credited).
Accumulated depreciation accounts are called contra accounts, or contra asset
accounts.
The difference between the original cost of the office equipment and the balance in the
accumulated depreciation—office equipment account is called the book value of the
asset (or net book value).