Prepayments
▰ these are expenses already paid but not
yet incurred or used.
▰ ASSET METHOD
Journal entry upon payment:
Prepaid Expense xxx
Cash xxx
Prepayments
▰ ASSET METHOD
Adjusting Entry at the end of the accounting
period:
Expense xxx
Prepaid Expense xxx
Note: The amount on the adjusting journal entry
represents the EXPIRED or USED PORTION of the
prepayment
Prepayments
▰ Example:
On April 30, 2016, ABC Co. paid P36,000
insurance premium for 2 years. Give the
adjusting entry for June 30, 2016
Prepayments
Journal entry upon payment on April:
Prepaid Insurance 36,000
Cash 36,000
Adjusting Entry at the end of the accounting period
June 30, 2016:
Insurance Expense 3,000
Prepaid Insurance 3,000
Prepayments
Note: The
▰ EXPENSE METHOD amount on
the adjusting
Journal entry upon payment: journal entry
represents
Expense xxx the
Cash xxx UNEXPIRED
Adjusting Entry at the end of the accounting or UNUSED
PORTION of
period: the
prepayment
Prepaid Expense xxx
Expense xxx
Prepayments
▰ Example:
On April 30, 2016, ABC Co. paid P36,000
insurance premium for 2 years. Give the
adjusting entry for June 30, 2016
Prepayments
Journal entry upon payment on April:
Insurance Expense 36,000
Cash 36,000
Adjusting Entry at the end of the accounting period
June 30, 2016:
Prepaid Expense 33,000
Insurance Expense 33,000
Deferrals
▰ Unearned or deferred income is income
already received but not yet earned.
▰ LIABILITY METHOD
Journal entry receipt of cash:
Cash xxx
Unearned Income xxx
Deferrals
▰ LIABILITY METHOD
Adjusting Entry at the end of the accounting
period:
Unearned Income xxx
Income xxx
Note: The amount on the adjusting journal entry
represents the EARNED PORTION of the amount
initially received.
Deferrals
▰ Example:
On August 1, Dr. Yee received P90,000 for
dental fees to be rendered in the next 6
months. Give the adjusting entry at the end
of September.
Deferrals
Journal entry upon receipt of cash on August 1:
Cash 90,000
Unearned Dental Fees 90,000
Adjusting Entry on September 30:
Unearned Dental Fees 30,000
Dental Fees 30,000
Deferrals
Note: The
▰ INCOME METHOD amount on
the adjusting
Journal entry upon receipt of cash: journal entry
represents
Cash xxx the
Income xxx UNEARNED
Adjusting Entry at the end of the accounting PORTION of
the amount
period: initially
received.
Income xxx
Unearned Income xxx
Deferrals
▰ Example:
On August 1, Dr. Yee received P90,000 for
dental fees to be rendered in the next 6
months. Give the adjusting entry at the end
of September.
Deferrals
Journal entry upon receipt of cash on August 1:
Cash 90,000
Dental Fees 90,000
Adjusting Entry on September 30:
Dental Fees 60,000
Unearned Dental Fees 60,000
Accrued Expenses
▰ Accrued Expenses are expenses
already incurred or used but not yet paid.
▰ Adjusting Journal Entry at the end of the
accounting period:
Expenses xxx
Expenses Payable xxx
Accrued Expenses
▰ Example:
The company received a Cepalco bill in the
amount of P9,800 on December 26, 2016.
The company intends to pay on January 8,
2017.
Accrued Expenses
Adjusting Journal entry on December 31, 2016:
Utilities Expense 9,800
Utilities Payable 9,800
Accrued Expenses
▰ Example:
Unpaid salaries at the end of December 31,
2016 amounted to P18,800.
Accrued Expenses
Adjusting Journal entry on December 31, 2016:
Salaries Expense 18,800
Salaries Payable 18,800
Accrued Income
▰ Accrued Income is income already
earned but not yet received.
▰ Adjusting Journal Entry at the end of the
accounting period:
Income Receivable xxx
Income xxx
Accrued Income
▰ Example:
A 1-year, 6% note receivable in the amount
of P200,000 was received on January 1,
2016. The interest and the principal are
payable on maturity date. Give the
adjusting journal entry on June 30, 2016.
Accrued Income
Adjusting Journal entry on June 30, 2016:
Interest Receivable 6,000
Interest Income 6,000
Computation:
Interest = Principal x Rate x Time
= P200,000 x 6% x ½ year
= P6,000
The interest for 6 months is P6,000.
Bad Debts
▰ Bad Debts or Doubtful Accounts or
Uncollectible Accounts are losses due
to uncollectible accounts.
▰ Adjusting Journal Entry at the end of the
accounting period:
Bad Debt Expense xxx
Allowance for Bad Debts xxx
Bad Debts
▰ Example:
Accounts receivable shows a balance of P100,000.
It is estimated that 8% of this is uncollectible. Give
the adjusting entry on December 31, 2016 for the
provision of the estimated uncollectible accounts.
Bad Debts
Adjusting Journal entry on December 31, 2016:
Bad Debts Expense 8,000
Allowance for Bad Debts 8,000
Depreciation Expense
▰ Depreciation Expense is the allowance PPE
cost over its estimated useful life.
▰ This is the expense allotted for the wear and tear
of PPE due to passage of time.
▰ 3 factors:
▰ Cost – the purchase price of the PPE.
▰ Salvage Value – the estimated value of the asset at the end of
its useful life.
▰ Estimated Useful Life – an estimation of the number of years
an asset can be useful to the entity.
Depreciation Expense
▰ The formula for computing annual depreciation:
Cost P xxx
Less: Salvage Value xxx
Depreciable Cost xxx
Divided by: Estimated Useful Life xxx
Annual Depreciation P xxx
Depreciation Expense
Adjusting Journal entry at the end of the accounting
period:
Depreciation Expense xxx
Accumulated Depreciation xxx
Depreciation Expense
▰ Example:
A building with an estimated useful life of 30 years
finished construction on June 1, 2016. The cost of
the building is P4.8 million with an estimated
salvage value of P300,000.
Give the adjusting entry for December 31, 2016 to
record the depreciation of the building.
Depreciation Expense
Computation:
Cost P 4,800,000
Less: Salvage Value 300,000
Depreciable Cost 4,500,000
Divided by: Estimated Useful life 30 years
Annual depreciation P 150,000
𝑃150,000
× 7 𝑚𝑜𝑛𝑡ℎ𝑠 = 𝑃87,500
12
Depreciation Expense
Adjusting Journal entry on December 31, 2016:
Depreciation Expense 87,500
Accumulated Depreciation 87,500
