Adjusting Journal Entries

Items which usually require adjusting entries:

1. Accruals
a. Accrued expenses consumed but not yet paid
b. Accrued income
earned but not yet collected
2. Deferrals
a. Prepaid expenses paid but not yet consumed
b. Deferred income collected but not yet rendered
3. Depreciation for property or equipment
4. Estimated doubtful accounts (bad debts)
5. Adjustments on inventories
for merchandising and manufacturing
establishments
6. Correction of erroneous journal entries
ACCRUALS
Accrued Expense expense that is already incurred by the business but not yet
paid.
Accrued Expense is always on the credit side.
Example:
_______________ Expense
P2,000.00
Accrued _________ Expense
P2,000.00
Unpaid rent:
Rent Expense
Accrued Rent Expense

Pxxxx
Pxxxx

Unpaid salaries:
Salaries Expense
Pxxxx
Accrued Salaries Expense Pxxxx
Unpaid interest:
Interest Expense
Pxxxx
Accrued Interest Expense Pxxxx
Accrued Income Adjustment
Accrued Income an income already earned by the business but not yet collected
when the accounting period ends.
Accrued income is always on the debit side.
Example:

Accrued ___________ Income

__________ Income

Pxxxx
Pxxxx

Uncollected Interest:
The business received a P100,000 6%,60-day note from a customer dated
December 2, 20A
Compute the Interest using the formula: Interest=Principal x Rate of interest x time

Computation:
Interest = P100,000 (6%)(60days/360 days) =P1000 interest
for 2 months or P500/month
The note covers 60 days, cut-off period is Dec. 31, only 500 was collected. The
remaining 500 will be collected on January the ff year.
In your adjusting entry:
Accrued Interest Income
Interest Income
Uncollected rent
Accrued Rent Income
Rent Income

P500
P500
Pxxxx
Pxxxx

Uncollected Interest:
Accrued Interest Income Pxxxx
Interest Income

Pxxxx

DEFERRALS (PREPAYMENT OF EXPENSES AND PRECOLLECTION OF INCOME)

Prepaid Expenses expense that is already paid but not incurred.
Prepaid expense is always on the debit side.
Ex.
Prepaid ________
Pxxxx
_________ Expense
Pxxxx
Prepayment of insurance:
Prepaid Insurance Pxxxx
Insurance Expense Pxxxx
Prepayment of Rent:
Prepaid Rent
Pxxxx
Rent Expense

Pxxxx

Precollected Income income already collected but not yet earned.

Unearned income is always on the credit side
Example:
________ income
Pxxxx
Unearned _______ Income
Pxxxx
Precollected Rent income
Rent Income
Pxxxx
Unearned Rent Income
Precollected Interest Income
Interest Income
Pxxxx
Unearned Interest IncomePxxxx

Pxxxx

DEPRECIATION
Annual Depreciation Expense = cost of the asset/estimated life of the asset in years
Example. On July1, 20A, the business acquired an Office equipment costing 60,000
with an estimated life span of 5 years.
Annual Depreciation Expense = 60000/5=P12,000
Adjusting entry:
Depreciation Expense
Acc. Depreciation Office Equipment
BAD DEBTS or Doubtful Accounts
Bad Debts
Pxxxx
Allowance for Bad Debts
Pxxx

Pxxxx
Pxxxx