Lesson 5 – Adjusting Entries

Activity 1:
Problem 1. Solution:
ADJUSTING JOURNAL ENTRIES
GENERAL JOURNAL

Date Particulars PR Debit Credit

2021
Dec. 31 a) Supplies expense P 3,000
Supplies on hand P 3,000
To recognize supplies used.

b) Interest Expense 160

Prepaid Interest 160
To recognize interest incurred.

c) Salaries Expense 8,500

Salaries Payable 8,500
To recognize unpaid salaries.

d) Depreciation expense –office equipment 1,500

Accumulated . Depreciation – office equipment 1,500
To record depreciation expense.

e) Commission income 250

Unearned commission income 250
To recognize unearned commission

f) Depreciation expense –office furniture 2,250

Accumulated. Depreciation – office furniture 2,250
To record depreciation expense.

g) Prepaid Advertising 2,000

Advertising expense 2,000
To recognize prepaid advertising

h) Accounts receivable 2,000

Service Income 2,000
To record income earned

i) Prepaid Insurance 1,500

Insurance Expense 1,500
To recognize unexpired insurance

j) Bad debts expense 1,250

Allowance for bad debts 1,250
Provision for bad debts

k) Utilities expense 3,800

Utilities payable 3,800
Unpaid light, water and telephone

l) Unearned Rental income 4,500

Rental Income 4,500
To recognize rental income
 Date Particulars PR Debit Credit
2021
Dec. 31 m) Depreciation expense –Truck 20,000
Accum. Depreciation – Truck 20,000
To record depreciation expense.

n) Interest expense 225

Interest payable 225
Accrued interest on notes payable.

o) Prepaid Rent 38,000

Rent Expense 38,000
To recognize prepaid rent.

Problem 2:

1. ADJUSTING JOURNAL ENTRIES

GENERAL JOURNAL
Date Particulars PR Debit Credit
2021
Dec. 31 1) Office supplies expense P 5,000
Office supplies P 5,000
To recognize supplies used.

2) Insurance expense 4,000

Prepaid Insurance 4,000
To recognize insurance expense

3) Salaries Expense 3,000

Salaries Payable 3,000
To recognize unpaid salaries.

4) Depreciation expense –office equipment 20,000

Accumulated Depreciation – office equipment 20,000
To record depreciation expense.

5) Depreciation expense –computer equipment 15,000

Accumulated Depreciation – computer equipment 15,000
To record depreciation expense.

6) Depreciation expense –office furniture & fixtures 7,600

Accumulated Depreciation – office furniture &
fixtures 7,600
To record depreciation expense.

7) Doubtful accounts expense 500

Allowance for doubtful accounts 500
Provision for estimated uncollectible accounts

8) Interest expense 500

Interest payable 500
Accrued interest on notes payable.

9) Interest receivable 100

Interest income 100
Accrued interest on notes receivable.
 10) Rent Expense 2,000
Utilities expense 1,000
Telephone expense 1,500
Rent payable 2,000
Utilities payable 1,000
Telephone payable 1,500
To recognize accrued expenses

2. Adjusted Trial Balance

Bala Legal Services
Adjusted Trial Balance
December 31, 2021

Cash P 65,000
Accounts Receivable 10,000
Allowance for doubtful accounts P 500
Notes Receivable 5,000
Interest receivable 100
Prepaid Insurance 8,000
Office Supplies 3,000
Office Equipment 100,000
Accumulated depreciation – office equipment 20,000
Office furniture and fixtures 40,000
Accumulated depreciation – office furniture and fixtures 7,600
Computer Equipment 60,000
Accumulated depreciation- computer equipment 15,000
Accounts Payable 5,000
Notes Payable 50,000
Interest payable 500
Salaries payable 3,000
Rent payable 2,000
Utilities payable 1,000
Telephone payable 1,500
Bala, Capital 77,000
Bala, Withdrawals 35,000
Consulting Revenues 390,000
Salary Expense 123,000
Rent Expense 36,000
Insurance Expense 4,000
Office supplies expense 5,000
Utilities Expense 26,000
Telephone Expense 9,500
Depreciation expense –office furniture & fixtures 7,600
Depreciation expense –office equipment 20,000
Depreciation expense –computer equipment 15,000
Doubtful accounts expense 500
Interest income 100
Interest expense 500 _________
P 573,200 P 573,200
Problem 3 :
The following account balances appear in the books of LC LAUNDRY as of the end of the year
December 31, 2021 after adjustments:

Accumulated depreciation – laundry equipment 4,000

Laundry Supplies 8,000
Accounts Receivable 10,900
Repairs and Maintenance 1,400
Salary Payable 1,550
Interest receivable 150
Accounts payable 121,200
Laundry Equipment 80,000
Cash 33,900
Interest income 150
Accumulated depreciation – Delivery Truck 12,000
Laundry Salaries 14,500
Bad debts expense 1,090
Notes Receivable 15,000
Depreciation expense – Delivery Truck 12,000
Notes Payable 10,000
Laundry Supplies Expense 15,000
Unearned Laundry Income 4,000
Linis Cami, Capital 104,000
Interest Payable 100
Laundry Income 90,300
Allowance for bad debts 1,090
Rent Expense 8,000
Delivery Salaries 12,000
Delivery Truck 120,000
Light and water Expense 3,700
Taxes and Licenses 2,100
Linis, Cami, Drawing 6,550
Depreciation expense- laundry equipment 4,000
Interest expense 100

REQUIRED: Adjusted Trial Balance

Solution

LC LAUNDRY
ADJUSTED TRIAL BALANCE
December 31, 2021

Debit Credit
Cash P 33,900
Accounts Receivable 10,900
Allowance for bad debts P 1,090
Notes Receivable 15,000
Interest receivable 150
Laundry Supplies 8,000
Laundry Equipment 80,000
Accumulated depreciation – laundry equipment 4,000
Delivery Truck 120,000
Accumulated depreciation – Delivery Truck 12,000
Accounts payable 121,200
Notes Payable 10,000
Interest Payable 100
Salary Payable 1,550
Unearned Service Income 4,000
Linis Cami, Capital 104,000
Linis, Cami, Drawing 6,550
Laundry Income 90,300
Laundry Supplies Expense 15,000
Rent Expense 8,000
Delivery Salaries 12,000
Repairs and Maintenance 1,400
Light and water Expense 3,700
Taxes and Licenses 2,100
Laundry Salaries 14,500
Bad debts expense 1,090
Depreciation expense- laundry equipment 4,000
Depreciation expense – Delivery Truck 12,000
Interest expense 100
Interest income _________ 150
P 348,390 P 348,390
 Lesson 6 - Preparation of Financial Statements and Completing the
Accounting Cycle for Service Business (closing Entries,
Post Closing Trial Balance and Reversing Entries)

Activity:
Problem 1 – Using Problem 2 ( Bala Legal Services – Lesson 5 activity)

REQUIRED: Prepare: 1. Financial Statements

2. Closing Entries
3. Post Closing Trial Balance
4. Reversing Entries

NATURAL INCOME STATEMENT

Bala Legal Services
Income Statement
Year ended December 31. 2021

Revenues
Consulting Revenues P 390,000
Interest income 100 P 390,100

Expenses
Salary Expense P 123,000
Rent Expense 36,000
Insurance Expense 4,000
Office supplies expense 5,000
Utilities Expense 26,000
Telephone Expense 9,500
Depreciation expense –office furniture & fixtures 7,600
Depreciation expense –office equipment 20,000
Depreciation expense –computer equipment 15,000
Doubtful accounts expense 500
Interest expense 500
Total expenses 247,100
Net Income P 143,000

THE STATEMENT OF CHANGES IN OWNER’S EQUITY

Bala Legal Services

Statement of Changes in Owner’s Equity
Year ended December 31, 2021

Bala, Capital, January 1, 2021 P 77,000

Add: Net income 143,000
Total P 220,000
Less: Bala, Withdrawals 35,000
Matibay A. Co Capital, December 31, 2021 P 185,000

Bala Legal Services

 Statement of Financial Position
December 31, 2021

ASSETS

Current Assets
Cash P 65,000
Accounts Receivable P 10,000
Less: Allowance for doubtful 500 9,500
Notes Receivable 5,000
Interest receivable 100
Prepaid Insurance 8,000
Office Supplies 3,000
Total Current Assets P 90,600

Noncurrent Assets
Office Equipment P 100,000
Less: Accumulated Depreciation 20,000 P 80,000
Office Furniture and Fixtures P 40,000
Less: Accumulated Depreciation 7,600 32,400
Computer Equipment P 60,000
Less: Accumulated Depreciation 15,000 45,000
Total non-current assets 157,400
Total Assets P 248,000

LIABILITIES and OWNER’S EQUITY

Current Liabilities
Accounts Payable P 5,000
Notes Payable 50,000
Interest Payable 500
Salary Payable 3,000
Rent payable 2,000
Utilities payable 1,000
Telephone payable 1,500
Total current liabilities P 63,000

Owner’s Equity
Bala., Capital 185,000
Total liabilities and owner’s equity P 248,000

CLOSING JOURNAL ENTRIES

GENERAL JOURNAL
 Date Particulars PR Debit Credit
2021
Dec. 31 Consulting Revenues P 390,000
Interest income 100
Income Summary P 390,100
To close income accounts to
income summary.

31 Income Summary 247,100

Salary Expense 123,000
Rent Expense 36,000
Insurance Expense 4,000
Office supplies expense 5,000
Utilities Expense 26,000
Telephone Expense 9,500
Depreciation expense –office furniture &
fixtures 7,600
Depreciation expense –office equipment 20,000
Depreciation expense –computer
equipment 15,000
Doubtful accounts expense 500
Interest expense 500
To close expense accounts to
income summary.

31 Income Summary 143,000

Bala, Capital 143,000
To close income summary to
capital account

31 Bala,Capital 35,000
Bala, Withdrawals 35,000
To close personal account to capital

Bala Legal Services

Post- closing Trial Balance
 December 31, 2021

Cash P 65,000
Accounts Receivable 10,000
Allowance for doubtful accounts P 500
Notes Receivable 5,000
Interest receivable 100
Prepaid Insurance 8,000
Office Supplies 3,000
Office Equipment 100,000
Accumulated depreciation – office equipment 20,000
Office furniture and fixtures 40,000
Accumulated depreciation – office furniture and fixtures 7,600
Computer Equipment 60,000
Accumulated depreciation- computer equipment 15,000
Accounts Payable 5,000
Notes Payable 50,000
Interest payable 500
Salaries payable 3,000
Rent payable 2,000
Utilities payable 1,000
Telephone payable 1,500
Bala, Capital _______ 185,000
P 291,100 P 291,100

REVERSING ENTRIES
GENERAL JOURNAL
Date Particulars PR Debit Credit
2022
Jan. 1 Salaries Payable P 3,000
Salaries Expense P 3,000
To reverse adjustment for accrued salaries.

Interest payable 500

Interest expense 500
To reverse adjustment for accrued interest

Interest income 100

Interest receivable 100
To reverse adjustment for accrued income

Rent payable 2,000

Utilities payable 1,000
Telephone payable 1,500
Rent expense 2,000
Utilities expense 1,000
Telephone expense 1,500
To reverse adjustment for accrued expenses

Problem 2:
The following account balances appear in the books of MATIBAY REPAIR SHOP as of the end of the year
December 31, 2021:
 Matibay Repair Shop
AdjustedTrial Balance
December 31, 2021
Debit Credit
Cash on hand P 6,500
Cash in bank 30,500
Accounts Receivable 52,300
Allowance for bad debts P 5,230
 Notes Receivable 15,000
Interest Receivable 500
Supplies on hand 2,500
Prepaid Advertising 3,500
Repair Equipment 85,000
Accumulated Depreciation 12,500
Furniture and Fixtures 32,000
Accumulated depreciation 3,500
Accounts Payable 58,500
Notes Payable 10,000
Interest Payable 500
Salary Payable 1,500
Matibay A. Co, Capital 71,620
Matibay A. Co, Personal 15,000
Service Income 183,350
Supplies Expense P 35,200
Rent Expense 18,000
Salary Expense 25,000
Advertising Expense 3,500
Utilities expense 5,600
Depreciation Expense – repair equipment 8,500
Depreciation expense – furniture and equipment 1,600
Bad debts Expense 2,500
Taxes and licenses 4,000
Interest Expense 2,500
Interest income _________ 2,500
P 349,200 P 349,200

REQUIRED: Prepare: 1. Financial Statements

2. Closing Entries
3. Post Closing Trial Balance

Solution:
Matibay Repair Shop
Statement of Financial Position
December 31, 2021

ASSETS

Current Assets
Cash on hand P 6,500
Cash in bank 30,500
Accounts Receivable P 52,300
 Less: Allowance for bad debts 5,230 47,070
Notes Receivable 15,000
Interest Receivable 500
Supplies on hand 2,500
Prepaid advertising 3,500
Total Current Assets P 105,570

Noncurrent Assets
Repair Equipment P 85,000
Less: Accumulated Depreciation 12,500 P 72,500
Furniture and Fixtures P 32,000
Less: Accumulated Depreciation 3,500 28,500
Total non-current assets 101,000

Total Assets P 206,570

LIABILITIES and OWNER’S EQUITY

Current Liabilities
Accounts Payable P 58,500
Notes Payable 10,000
Interest Payable 500
Salary Payable 1,500
Total current liabilities P 70,500

Owner’s Equity
Matibay A. Co., Capital 136,070
Total liabilities and owner’s equity P 206,570

THE STATEMENT OF CHANGES IN OWNER’S EQUITY

Matibay Repair shop

Statement of Changes in Owner’s Equity
Year ended December 31, 2021

Matibay A. Co, Capital, January 1, 2021 P 71,620

Add: Net income 79,450
Total P 151,070
Less: Matibay A. Co, Personal 15,000
Matibay A. Co Capital, December 31, 2021 P 136,070

NATURAL INCOME STATEMENT

Matibay Repair Shop
Income Statement
Year ended December 31. 2021

Revenues
Service Income P 183,350
Interest income 2,500 P 185,850

Expenses
Supplies Expense P 35,200
Rent Expense 18,000
 Salary Expense 25,000
Advertising Expense 3,500
Utilities expense 5,600
Depreciation Expense – repair equipment 8,500
Depreciation expense – furniture and equipment 1,600
Bad debts Expense 2,500
Taxes and licenses 4,000
Interest Expense 2,500
Total expenses 106,400
Net Income P 79,450

CLOSING JOURNAL ENTRIES

GENERAL JOURNAL

Date Particulars PR Debit Credit

2021
Dec. 31 Service income P 183,350
Interest income 2,500
Income Summary P 185,850
To close income accounts to
income summary.

31 Income Summary 106,400

Supplies expense 35,200
Rent expense 18,000
Salary expense 25,000
Advertising expense 3,500
Utilities expense 5,600
Depreciation expense – repair equipment 8,500
Depreciation expense – furniture and
fixtures 1,600
Bad debts expense 2,500
Taxes and Licenses 4,000
Interest expense 2,500
To close expense accounts to
income summary.

31 Income Summary 79,450

Matibay A. Co.,, Capital 79,450
To close income summary to
capital account

31 Matibay A. Co, Capital 15,000

Matibay A. Co, Personal 15,000
To close personal account to capital
 Matibay Repair Shop
Post-Closing Trial Balance
December 31, 2021

Debit Credit
Cash on hand P 6,500
Cash in bank 30,500
Accounts Receivable 52,300
Allowance for bad debts P 5,230
Notes Receivable 15,000
Interest Receivable 500
Supplies on hand 2,500
Prepaid Advertising 3,500
Repair Equipment 85,000
Accumulated Depreciation 12,500
Furniture and Fixtures 32,000
Accumulated depreciation 3,500
Accounts Payable 58,500
Notes Payable 10,000
Interest Payable 500
Salary Payable 1,500
Matibay A. Co, Capital _________ 136,070
P 227,800 P 227,800