This document provides an overview of adjusting entries in accounting. It discusses five categories of adjusting entries: 1) Prepaid expenses where assets are adjusted as expenses are used up, 2) Depreciation of plant assets where asset costs are allocated to expenses over time, 3) Accrued expenses where expenses incurred but not paid are recorded, 4) Accrued revenues where revenues earned but not received are recorded, and 5) Unearned revenue where cash received before work is done creates a liability. Examples are provided for each category to illustrate the adjusting journal entries. The purpose of adjusting entries is to allocate revenues and expenses to the proper accounting periods.

1. ACCT 11
Module Title: ADJUSTMENT ENTRIES
Developer: Mrs. Sarah Joy D. Martin
Materials: Eugene A. Ruano, CPA

2. SPECIFIC LEARNING
1 Discussed how to adjust the entries
2 Understand the meaning of adjusting entries
3 Understand why we need adjustments

3. 1 Introduction
2 Need for adjustment
3 Accounts that need to be adjusted
4 Prepaid Expenses
5 Depreciation of Plant Assets
6 Accrued Expenses
7 Unearned Revenue

5. ADJUSTING ENTRIES
done at the end of a period.
All adjusting entries will affect either an expense account or
a revenue account.
ADJUSTING ENTRIES ARE DIVIDED INTO FIVE CATEGORIES:
Prepaid Expenses
Accrued Revenues
Depreciation of Plant Assets
Unearned Revenue
Accrued Expenses

6. Prepaid rent and supplies. Cash is paid in advance so these items are
assets until they are used up. Once they are used up they are
transferred from an asset to an expense.
PREPAID EXPENSES advance payment of expenses
For example: At the beginning of the month you had 100 in
supplies, when you check your cabinet you now have only 20 in
supplies. You will need to adjust the asset called supplies expense
and the supplies you have used.
Supplies Expense 80
Supplies 80
To record supplies expense
–
100 20 = 80

7. Companies allocate plant asset costs to an expense
over its useful life. This is called depreciation.
Depreciation of Plant Assets
All plant assets (except land) decline in usefulness as they age.
If your depreciation for this year on equipment is P500,
you will need to journalize the depreciation.
Depreciation Expense 500
Accumulated Depreciation 500
To record equipment
depreciation

8. Accumulated Depreciation
contra-asset account, which means an asset
account with a normal credit balance. This account
stays with the asset until the asset is disposed of.
Depreciation Expense – Equip1 200
Depreciation Expense – Equip2 300
Accumulated Depreciation 500
To record equipment
depreciation

9. Accrued Expenses
an expense that the business has incurred but not yet paid.
The most common of these is payroll.
Salary Expense 40
Salary Payable 60
Cash 100
To record accrued
expenses
Assume that the month ends on a Wednesday and you pay employees on Friday.
This employee receives P20 per day. Because the month ends on a Wednesday
you will need to expense 3 days of payroll to be paid on Friday.
On Friday the following transaction will take
place when the payroll is paid:
Salary Expense 60
Salary Payable 60
To record expenses

10. Accrued Revenues
revenue that has been earned but not yet collected in cash.
Cash 1000
Account Receivable 800
Service revenue 200
To record accrued
revenues
In many cases a company will perform half of a job during one period and the other half during
the next period, but will not get paid until the job is complete. Let’s assume that you have a
job that, when completed, will pay P1000. At the end of the month you have completed 80%
of the job, this revenue must be recorded in the month earned.
When the job is complete and the cash is
received the following will take place.
Account Receivable 800
Service revenue 800
To record revenues
1000 x .80 = 800

11. Unearned Revenue
a liability created when a business collects cash from customers before
actually doing the work.
Cash 300
Account Receivable 300
To record unearned
revenues
received the payment you
recorded the following:
Adjusting Entry
Cash 500
Unearned Revenue (Lia) 500
To record revenues
Unearned Revenue 200
Service Revenue 200
To record revenues

13. END OF PRESENTATION