Download Adjusting Journal Entries study notes and more Study notes Financial Accounting in PDF only on Docsity! Adjusting Entries CHAPTER 4 Adjusting Entries Adjusting journal entries are made to update the accounts and bring them their correct balances. The preparation of adjusting entries is an application of the accrual concept of accounting. At the end of the accounting period, some income and expenses may have not been recorded, taken up or updated; hence, there is a need to update the accounts. Making the Adjustments Type of Adjustment Adjusting Entry Effects if Adjustment is not made 1. Accrued Revenue Debit Asset Assets under, Owner’s Equity under Credit Revenue Revenue under, Profit under 2. Accrued Expense Debit Expense Expenses under, Profit over Credit Liability Liability under, Owner’s Equity over 3. Unearned Revenue Debit Liability Liability over, Owner’s Equity under Credit Revenue Revenue under, Profit under 4. Prepaid Expense Debit Expense Expenses under, Profit over Credit Asset Asset over, Owner’s Equity over 5. Depreciation Expense Debit Expense Expenses under, Profit over Credit Contra Asset Asset over, Owner’s Equity over 6. Doubtful Accounts Expense Debit Expense Expenses under, Profit over Credit Contra Asset Asset over, Owner’s Equity over Adjusting Entries for Accrued Income Pro-Forma Entry: Example: On December 31, 2018, Ramos Network Services performed P3, 000 worth of services to a client. The amount has not yet been collected and was never recorder in the journal of the company. Month dd Particular Debit Credit Receivable account* P x,xxx Income account P x, xxx Month dd Particular Debit Credit Dec. 31 Accounts Receivable P3, 000 Service Revenue P3, 000 Adjusting Entries for Accrued Expense Pro-Forma Entry: Example: For the month of December 31, 2018, Ramos Network Services used a total of P1, 800 worth of electricity and water. The company received the bills on January 10, 2019. When ahould the expense recorded? Month dd Particular Debit Credit Expense account* P x, xxx Liability account* P x, xxx Month dd Particular Debit Credit Dec. 31 Utilities Expense P1, 800 Utilities Payable P1, 800 Adjusting Entry for Depreciation Expense Formula: Depreciable Cost – Salvage Value Useful Life Pro-forma Entry: Month dd Particular Debit Credit Depreciation Expense acct* P x, xxx Accumulated Depreciation acct* P x, xxx Adjusting Entry for Bad Debts Expense Pro-forma Entry: Or Month dd Particular Debit Credit Doubtful Accounts Expense acct.* P x, xxx Allowance for Doubtful acct.* P x, xxx Month dd Particular Debit Credit Bad Debts Expense* P x, xxx Allowance for Bad Debts* P x, xxx