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Adjusting Entry

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17 views10 pages

Adjusting Entry

Uploaded by

johnpauldesalisaramos
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Adjusting

Entry
Having completed the Trial Balance report is not yet the end of
a bookkeeper’s responsibility. The bookkeeper’s responsibility
will only end when the business has closed its books of
accounts. The books of accounts of a business will be closed
at the end of the business’s calendar or fiscal year. The
calendar year always begins in January 1 and ends on
December 31 of the same year. While the fiscal year begins at
any month of the year and ends on the 12th month of the
following year. All business activities (financial in nature)
should be recorded in the books of accounts even when the
financial reports have already been prepared. Business
activities or transactions that were not included in the financial
reports will be recorded to reflect necessary adjustments.
What is an Adjusting Entry?
Adjusting entry is an entry made to update the financial data already
recorded. Making an adjusting entry helps the bookkeeper capture all
financial events that happened over a period of time with in the
accounting cycle. It is essential in keeping the financial record
updated. The bookkeeper is going to look or examine accounts that
needs to be updated. Outlined below are the five basic sources of
adjusting entries:
1. Depreciation expense
2. Deferred expenses of prepaid expenses
3. Deferred income of unearned income
4. Accrued expenses of accrued liabilities
5. Accrued income or accrued assets
1. Depreciation
This is a method of allocating the cost of an asset to an
expense over the accounting periods that make up the
asset’s useful life. Examples of assets subject to
depreciation are: Store, Office, Building, and Transportation
Equipment. These types of assets lose their ability to
provide useful service as time passes. Depreciation can also
be referred to as the decrease in the usefulness of these
types of assets. Take note that Land is not subject to
depreciation because the value of land mostly increases as
time passes.
1. Depreciation
The simplest is the straight-line method.
The formula:
Annual Depreciation = Acquisition Cost – Salvage or Residual Value
Useful Life
Where:
Acquisition Cost – the actual cost of the asset acquired.
Salvage Value – the selling price of the asset upon reaching the
useful life.
Useful Life – is the economic or productive life of the asset written in
months or years.
2. Deferred expenses or prepaid expenses
These are items that have been initially recorded as assets
but are expected to become expenses over time or through
the operations of the business. In order to recognize the
correct amount of expenses, prepayments shall be
amortized weekly, semi-monthly or monthly, depending on
its nature and purpose.

3. Deferred income or unearned income


These are items that have been initially recorded as
liabilities but are expected to become income over
time or through the operations of the business.
4. Accrued expenses or accrued liabilities
These are items of expenses that have been
incurred but have not been recorded and paid.

5. Accrued income or accrued assets


These are income items that have been earned but have not
been recorded and paid by the customer. In short, these are
receivables of the business.
Let’s
Practice!!!
Directions: Let’s take a look at Alpha Laundry Services’ transaction
that transpired after the Trial Balance have been prepared. In this
activity, you are tasked to do the following:

1. Identify accounts that need to be adjusted.


2. Prepare adjusting journal entries in the General Journal.

It should be noted that all transactions have already been recorded


in the general journal. All you have to do is to analyze and follow the
process on how the transactions are being recorded and forwarded
using the T-Accounts applying the rules of debit and credit.
1. Depreciation of Equipment
The laundry equipment, which was purchased by ALS on June 5, 2018 at
P150,000.00 has an estimated useful life of 5 years with a salvage value
of P10,000.00. Compute for the monthly depreciation to be charged as
depreciation expense and will be deducted against the cost to get the net
book value of the laundry equipment.

2. Prepaid Insurance
The insurance paid for Laundry equipment is P6,000.00. An expired
portion of the insurance in the amount of P500.00 is determined by
dividing the prepayments over 12 months (P6,000.00 / 12 months). The
expired portion will be charged to expense. This will reduce the value of
prepaid insurance balance.

3. Deferred expenses for supplies inventory. At the end of the month,


unused supplies were recorded to be P3,000.

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