ADJUSTING

- prepared at the end to update records, for accurate records

- transactions that were not recorded during the period

ACCOUNTING PERIOD
- any period where finance is recorded

TYPES OF ADJUSTMENTS
1. Additional income or unrecorded expense

Ex. Provide services but will be paid next year

Current
- accounts receivable xxx
- service income xxx

Adjustment
- cash xxx
- accounts receivable xxx

2. Income or expense that does not belong to current period

Ex. Bought 1 year insurance for 12k. 1 month expense of 1k to recog expense
Current
- prepaid insurance 12k
- cash 12k

Adjustment
- insurance expense 1k
- prepaid insurance 1k

3. Asset and their expired amounts

ex. Bought equipment for 50k, life of 5 years, annual depre is 10k

Current
- equipment 50k
- cash 50k

Aadjustment
- depreciation expense 10k
- accumulated depreciation 10k

4. Liability or prepaid income

Ex. Received 24k for 1 year advance membership, 2k monthly revenue is recog

Current
- cash 24k
- unearned revenue 24k

Adjustment
- unearned revenue 2k
- service revenue 2k

Methods of Accounting
1. Cash method- record when you receive cash and paid in cash
2. Accrual method- record when incurred, even if no money received

1. UNRECORDED INCOME OR ACCRUED INCOME

Income earned but not yet rececived payment

Ex. Provide service in dec but will receive payment in january

Current
Accounts receivable xxx
Service revenue xxx

Adjust
Cash xxx
Account receivable xxx

2. UNRECORDED EXPENSE OR ACCRUED EXPENSE

Incurred but not yet paid or recorded

Ex. Incurred electric expense, but not yet paid

Current
Utilities expense xxx
Utilities payable xxx

Adjustment
Utilities payable xxx
Cash xxx

3. BAD DEBTS
Uncollectible accounts, unable to pay

Ex. Estimates 2k will be uncollectible

Adjustment
- bad debts expense xxx
- allowance for doubtful accounts xxx

Specific account
- allowance for doubtful accounts xxx
- accounts receivable xxx

4. DEPRECIATION
Spread the Cost of long term asset over the useful life

Ex. Purchased equipment 100k, with life of 5 years. Annual depre is 20k

Adjustment
Depreciation expense 20k
Accumulated depreciation20k

5. PREPAID EXPENSE
Paid advance expense that will be used over time
Ex. 1 year advance insurance for 12, 1k evry month for expense

Current
Prepaid insurance 12k
Cash 12 k

Adjustment 3 months
Insurance expense 3k
Prepaid insurance 3k

6. PRECOLLECTED INCOME(UNEARNED REVENUE)

Received payment before providing service

Ex. Received 24k 1 year advance membership, each month 2k is recog as

revenue

Current
Cash 24k
Unearned revenue 24k

Adjustment
Unearned revenue 2k
Service revenue 2k

7. SET UP ENDING INVENTORY (MERCHANDISE BUSINESS)

Adjust to reflect correct ending balance

Ex. Initial inventory is 50k , purchase goods 200k and at year end inventory is at
40k

Adjustment
Cost of goods sold 201k
Inventory 210k

ADJUSTMENTS MADE IN ACCRUAL BASIS

1. ACCRUED EXPENSE- expense incurred but not yet paid
ex. Incur 5k electric bill in dec and will pay in jan

Adjustment
Utilities expense 5k
Utilities payable 5k

received
Utilities payable 5k
Cash 5k
2. ACCRUED INCOME - income earned but not yet received payment
Ex. Provide 60k serive in dec and will receive money in jan

Adjustment
Accounts receivable 60k
Service revenue 60k

Received
Cash 60k
Accounts receivable 60k

3. DEPRECIATION- decrease in asset valuedue to usage, except land and jewelry

Ex. Purchase land for 100k, useful life is 5 years, annual decrease of 20k

Adjust
Depreciation expense 20k
Accumulated depreciation 20k

STRAIGHT LINE DEPRECIATION

DEPRECIATION - cost less scrap value
COST - price paid
SCRAP VALUE/ SALVAGE VALUE - worth after useful life
USEFUL LIFE- estimated service life

BAD DEBTS OR DOUBTFUL ACCOUNTS- unreceivables

METHODS FOR ALLOWANCE FOR BAD DEBTS

1. PERCENTAGE OF RECEIVABLE- fixed rate from total receivable
2. PERCENTAGE OF SALE/ INCOME- rate from total revenue
3. AGING OF RECEIVABLE- older receivables have high chance
4. ARCITRARY AMOUNTS- amount based on internal analysis

PREPAID EXPENSE- paid in advanc, but havent received benefits

- adjusted to reflect the portion of expired cost

2 METHODS FOR ACCOUNTING PREPAID EXPENSES ( debit)

1. ASSET METHOD- assetfirst, then expense over time
Prepaid expense
Cash

Expense
Prepaid expense

2. EXPENSE METHOD- expense first, adjust unused portion

Expense
Cash

Prepaid expense
Expense
PREPAID EXPENSES
MEMORIZE THESE PROFORMA ENTRIES:
A. IF THE ASSET METHOD IS USED, DEBIT EXPENSE AND CREDIT AN ASSET.
RENT EXPENSE………….PXX
PREPAID RENT……………….PXX

B. IF THE EXPENSE METHOD IS USED, DEBIT ASSET CREDIT AN EXPENSE

PREPAID RENT …………..PXX
RENT EXPENSE ……………...PXX

PRE COLLECTED INCOME (credit)

- received advance payment before doing service

2 METHODS IN ACCOUNTING FOR PRECOLLECTED INCOME

1. INCOME METHOD- income first, adjust unearned

Cash
Service revenue

Service revenue
Unearned revenue

2. LIABILITY METHOD- liability first, then income when earned

Cash
Unearned revenue

Unearned revenue
Service revenue

PRECOLLECTED INCOME
MEMORIZE THESE PROFORMA ENTRIES:
A. IF THE LIABILITY METHOD IS USED, DEBIT LIABILITY AND CREDIT INCOME
UNEARNED COMMISSION………….PXX
COMMISSION INCOME……………….PXX

B. IF THE INCOME METHOD IS USED, DEBIT INCOME CREDIT LIABILITY

COMMISSION INCOME …………..PXX
UNEARNED COMMISSION……………...PXX

As of january 1, 200a. autocoto shop has the following balance on equipment

Equipment 100,000
Less: accumulated depreciation (for 6 years) 60,000
Book value 40,000

On june 30, 200a, the shop sold its old equipmentfor 40,000. on the same date,
the shop purchsed a new machine for 200,000 with an estimated useful life of 10
years

1. How muc his the gain?loss on sale of the old equipment

0

2. How much is the depreciation expense for the yea 200a

15,000

3. How much is the book value of equipment as of december 31, 200a

190,000

Example Scenario

Let's say you sell the equipment for ₱40,000:

Book Value = Selling Price → No gain, no loss ✅

But if you sold it for ₱50,000:

Selling Price (₱50,000) - Book Value (₱40,000) = ₱10,000 gain ✅

And if you sold it for ₱30,000:

Selling Price (₱30,000) - Book Value (₱40,000) = ₱10,000 loss ❌

Key Takeaways

✔ Accumulated depreciation (₱60,000) is the total depreciation recorded

over 6 years.
✔ Book value (₱40,000) is the remaining value after subtracting
depreciation.
✔ Original equipment cost (₱100,000) remains unchanged in the records.
✔ If sold, book value helps determine a gain or loss.

Ap 75 + 180=255- 45 210
Us 5 + 15 = 20 - 4500= 1500

At the start of the period, accoutns payable balance was 75,000 and the unused
supplies have a balance of 5,000. total purchases on account amounted to
180,000 during the period including 15,000 supplies. At the end of the year, the
unused supplies balance is 4,500 and the accounts payable balance is 45,000

The supplies expense for the period is

15,500

The payment of accounts payable during the period is

210,000

Ben clothing store shows the following data for a calendar year
Accounts receivable, beginning 100,000
Allowance for doubtful accounts, beginning 10,000
Credit sales during the year 500,000
Collections 525,000
Accounts written off 5,000

How much is the doubtful accounts expense during the year

5,000

How much is the accounts receivable, net of allowance at the end of the year
60,000

Allowance for doubt accounts

Beginnign is 10,000
Written off is 5,000

Ending b= beginning allow+ doubt account exp - accountswritten off

Ending b = 10,000 + doubt account - 5,000

Ending acc recei= beg ar + credit sales - collections - written off

Ending= 100,000 + 500,000 - 525,000 - 5,000
Ending = 70,000

Net ar= ending - allowance

Net ar= 70,000 - 10,000
Net ar= 60,000

Dimacali received P60,000 advance payment of his fee in January. In February, ½ of the
amount is already earned, and ¼ is still to be earned in March and 1/4 is to be returned to
the customer because it could no longer be earned.

How much is the correct revenue

 D. ₱60,000 total from January to March either under accrual or cash basis.

Bud Grocery's cash in bank balance per book amounted to P100,000 after drawing an
undelivered Check payment of P25,000. The bank statement subsequently received
reveals a credit memo of
P20,000 for note collection, and a bank service charge of P100, but a P5,000 check from
customer is marked NSF. As of the same day, Bud collected accounts receivable amounting
* P15.100. This amount was not included in the cash in bank balance per book because it
was not yet deposited

How much is the correct amount of cash balance

The pre-collection is P600. This is applicable for a six-month rental period ending January
31, 200B. The Statement of Financial Position to be prepared is dated december 31, 200a.
If the precollection was recorded under SCI methocs, the liability to be recorded would be
100

The total sales were P1,000,000. The sales on cash basis amounted to P400,000. The
policy of the business is to provide 1% of credit sales as bad debts expense. The bad debts
expense is
6,000

The beginning balance of accounts receivable was P499,950 net of 1% allowance, for
doubtful accounts. The accounts receivable as of year-end is P550,000 before allowance for
doubtful accounts. The allowance for doubtful accounts is estimated at 1% of the accounts
receivable. The doubtful accounts expense is

450

The net Book value of the plant asset at the start of the year is 480,000. The depreciation
rate is 2% per year. The net book value at the end of the year is 470,000. If there are no
additions and disposals of assets, the depreciation expense for the year would be

9,600

The prepaid rent is P12,000 good for three months starting November 30. 200a. The
Statement of Financial Position date is December 31, 200a. The prepayment was recorded
under asset method. The correct rent expense for the given period would be

4,000

The 90-day non-interest bearing note amounting to P50,000 was issued on November 30,
200A. The prevailing interest rate is 12%. The accrued interest as of December 31, 200A is

500

The beginning balance of unused supplies is P500. During the period, the total purchases of
supplies amounted to P2,000 which was initially recorded as asset. At the end of the period,
the actual unused supplies are P200. The supplies expense to be reported for the period is

2,300

The business received a 90-day promissory note of P20,000, carrying an interest of 12% per
year. The promissory note is dated May 1, 200A and the Statement of Financial Position date of
the business is June 30, 200A. The accrued expense is

400