FUNDAMENTALS
OF
ACCOUNTANCY,
BUSINESS, AND
MANAGEMENT 1
Adjusting Entries
Monnette, the proprietor of Sun Beauty Shop, had the following
2
transaction during the month of August 2020:
AUG. 1 – INVESTED THE FOLLOWING:
Review CASH – P190,000
OFFICE FURNITURE - P 80,000
2 – PURCHASE VARIOUS BEAUTY SUPPLIES ON CREDIT,
P5,000.
4 – CASH RECEIVED AS PAYMENT OF VARIOUS
CUSTOMERS, P25,000.
8 - RENDERED SERVICES TO BEAUTY PAGEANT
CONTESTANT OF THE LOCALITY, P50,000 ON
ACCOUNT.
15 - PAID RENT FOR THE MONTH, P10,000.
17- PAID VARIOUS BEAUTY SUPPLIES PURCHASED IN
AUGUST 2.
20- COLLECTED 50% OF THE BILLINGS ON AUGUST 8
SERVICES
28- PAID THE SALARY OF THE ATTENDANT, P18,000.
ADJUSTING
ENTRIES
Presentation title 4
NATURE OF ADJUSTING ENTRIES
• Adjusting entries are prepared to
update the balances of the accounts.
Presentation title 5
PURPOSE OF ADJUSTING
ENTRIES
• Update balances of some accounts; and
• Match properly revenues against
expenses during the period
Presentation title 6
KINDS OF ADJUSTING ENTRIES
ACCRUALS DEFERRALS ESTIMATES
Presentation title 7
TWO TYPES OF
ACCRUALS
ACCRUAL OF INCOME
ACCRUAL OF EXPENSE
• Expenses that • Income that
already been already been
incurred but earned but not
not yet paid. yet received or
collected.
Presentation title 8
PRO-FORMA ENTRY
Expenses xxxx
Accrued expenses or Expense Payable xxx
Presentation title 9
ILLUSTRATION (ACCRUED EXPENSE)
On December 30, 2020, Angel Consultancy hired a daily wage
worker for the maintenance of the office. Angel follows the
calendar year as the accounting period. The daily wage of the
worker is P500 or a weekly salary of P3,000 for six days except
Sunday. Angel Consultancy adopts a weekly salary scheme and
pays every Sunday.
Assume in the calendar that December 30, 2020 falls on a Monday. This
would imply that December 31, 2020 falls on Tuesday which is the end
of the accounting period.
Presentation title 10
ILLUSTRATION (ACCRUED INCOME)
Princess apartelle admitted a tenant who will
occupy a room with a monthly rate of P12,000 on
December 20, 2020 for 6 months. Princess will be
paid every 20th of the month.
The implications of this transaction are as follows:
a. Princess Apartelle will collect payment of rental every 20 th of the month.
b. The first collection wil be on January 20, 2021.
c. As of December 31, 2020, Princess already earned partial rentl income equivalent to
1o days.
DEFERRALS
are adjusting entries that update accounts because
book of accounts have recognized the
transactions pertaining to future funds.
Presentation title 12
TWO TYPES OF
DEFERRALS
PREPAYMENT OF
PREPAYMENT OF
INCOME
EXPENSE
• Expenses • Advance cash
collections for
that are paid services expected
in advance to be rendered in
the future.
Presentation title 13
PREPAYMENT OF
EXPENSE
Adjusting Entries 14
TWO INCLUSIVE INSTANCES OF
PREPAYMENTS OF EXPENSES
THE THE
PREPAYMENT PREPAYMENT
HAS BEEN HAS BEEN
PARTLY FULLY
UTILIZED. UTILIZED.
15
TWO METHODS OF RECORDING
PREPAYMENTS OF EXPENSE
EXPENSE METHOD ASSET METHOD
Illustration:
On March 1, 2020, Jocelyn
Watch Repair Shop paid the rental
for six months amounting to
P30,000. The business follows
Calendar year.
Questions:
1. How much is the rent expense
for 2020?
2. Is there a need to adjust Rent
expense on December 31, 2020?
16
TWO METHODS OF RECORDING
PREPAYMENTS
EXPENSE METHOD ASSET METHOD
Illustration:
On September 1, 2020,
Izzy Repair Services paid the
rental for on year amounting to
P72,000. The business follows
calendar year.
1. How much is the rent
expense for 2020?
2. Is there a need to adjust Rent
expense on December 31,
2020?
17
TWO METHODS OF RECORDING
PREPAYMENTS OF EXPENSE
EXPENSE METHOD ASSET METHOD
Illustration:
On March 1, 2020,
Jocelyn Watch Repair Shop
paid the rental for six months
amounting to P30,000. The
business follows Calendar
year.
Questions:
1. Is there a need to adjust
entry on December 31, 2020?
18
TWO METHODS OF RECORDING
PREPAYMENTS OF EXPENSE
EXPENSE METHOD ASSET METHOD
Illustration:
On September 1,
2020, Izzy Repair Services
paid the rental for on year
amounting to P72,000. The
business follows calendar
year.
1. Is there a need to adjust
entry on December 31,
2020?
Presentation title 19
PREPAYMENT OF
INCOME
20
TWO METHODS OF RECORDING
PREPAYMENTS OF INCOME
INCOME METHOD LIABILITY METHOD
21
TWO METHODS OF RECORDING
PREPAYMENTS OF INCOME
INCOME METHOD LIABILITY METHOD
Illustration:
On April 1, 2020, HYZEL
Broadcasting received P90,000
from a customer for the
advertisement of a product. The
amount is intended to cover a
period of 15 months period
starting April 2020.
Question:
1. Is there a need to adjust entry
on December 31, 2020?
22
TWO METHODS OF RECORDING
PREPAYMENTS OF INCOME
INCOME METHOD LIABILITY METHOD
Illustration:
On April 1, 2020,
HYZEL Broadcasting received
P36,000 from a customer for the
advertisement of a product. The
amount is intended to cover a
six-month period starting April
2020.
Question:
1. Is there a need to adjust entry
on December 31, 2020?
23
TWO METHODS OF RECORDING
PREPAYMENTS OF INCOME
INCOME METHOD LIABILITY METHOD
Illustration:
On April 1, 2020,
HYZEL Broadcasting received
P90,000 from a customer for the
advertisement of a product. The
amount is intended to cover a
period of 15 months period
starting April 2020.
Question:
1. Is there a need to adjust entry
on December 31, 2020?
